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1. Explain why we observe that, when interest rates increase, bond prices decrease! Don’t lenders like high interest rates?
2. An investment provides cash inflows of $500 per year for 15 years. What is the payback period if the initial cost is $10,000? Should you proceed with this investment?
3. Assume a StatOil (STL) bond with a 10% coupon and 8% yield-to-maturity. If the bond’s yield-to-maturity remains constant, the in one year, will the bond’s price be higher, lower, or unchanged? Explain briefly.
An investment offers the following cash flows: $650 today, $750 one year from now, $900 in 2 years, and $850 in 3 years. If the relevant interest rate is 4% per year (an APR, with interest compounded annually), what is the value of the investment 3 y..
What is the price of a perpetual bond with a par value of $1,000.00 and a coupon rate of 7.25% (semi annual coupon)? The bond has a nominal yield to maturity of 6.90%.
Under the terms of the agreement all payments are made at the end of each year. Instead of accepting the contract, the baseball player asks his agent to negotiate a contract that has a present value of $1 million more than that which has been offered..
Fly Away, Inc., has balance sheet equity of $6.6 million. At the same time, the income statement shows net income of $798,600. The company paid dividends of $403,293 and has 100,000 shares of stock outstanding. If the benchmark PE ratio is 30, what i..
There has been a new surge of mergers and acquisitions (M and A) in the last several years. Why is this? In the past, why have so many not been successful? In your opinion, what are the most important factors to be taken into account for a successful..
Chartreuse County Choppers Inc. is experiencing rapid growth. The company expects dividends to grow at 17 percent per year for the next 10 years before leveling off at 4 percent into perpetuity. The required return on the company’s stock is 12 percen..
The Muse Co. just issued a dividend of $3.45 per share on its common stock. The company is expected to maintain a constant 7.10 percent growth rate in its dividends indefinitely. If the stock sells for $69 a share, what is the company’s cost of equit..
What are the tax considerations of the Sears and Kmart merger in regards to: Stock purchase tax implementation. Seller tax benefits and double taxation. Use of net operating losses as tax shelter
Using the example of a savings account, explain the difference between the effective annual rate and the annual percentage rate.
Consider another uneven cash flow stream: What is the present ( year 0) value of the cash flow stream if the opportunity cost rate is 10 percent? What is the future (year 5) value of the cash flow stream if the cash flows are invested in an account t..
Many of the approaches to management and/or managerial theories are based on historical approaches to management and/or historical managerial theories.
John Jones is married, with a son, and would like to purchase enough life insurance to provide the following for his family. If he were to die, his son and wife would receive $14,400 annually for 12 years from Social Security. His wife is also the pr..
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