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Assume that the real risk free rate is 2% and that the maturity risk is zero. If a 1-year Treasury bond yield is 5% and a 2-year Treasury bond yield is 5% and a 2-year Treasury bond yields 7%, what is the 1-year interest rate that is expected for year two? Calculate the yield using a geometric average. What inflation rate is expected during year-2? Comment on why the average interest rate during the 2-year period differs from the 1-year interest rate exposed for year 2.
Rhiannon Corporation has bonds on the market with 16.5 years to maturity, a YTM of 6.30 percent, and a current price of $1,036. The bonds make semiannual payments. What must the coupon rate be on these bonds?
Funding Jill Moran’s Retirement Annuity: Sunrise Industries wishes to accumulate funds to provide a retirement annuity for its vice president of research, Jill Moran. Ms. Moran by contract, will retire at the end of exactly 12 years. How large a sum ..
Compact fluorescent lamps (CFLs) have become more popular in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent lightbulb costs $0.46 and lasts for 1,000 hours. You require a return of 11 percent and use a light fi..
What is the taxpayer’s gross income in each of the following situations? Darrin received a salary of $50,000 in 2013 from his employer, Green Construction. Determine the effect of the scholarship on gross income of Sally (for question 1) and then det..
In the Industrial Supply Company example (Table 4.4) it was assumed that the company’s fixed assets were being used at nearly full capacity and that net fixed assets would have to increase proportionately as sales increased.
What are the advantages and disadvantages of using financial leverage? Answer from the banker's point of view and then from the bank regulator's point of view.
Harrison Corporation is interested in acquiring Van Buren Corporation. Assume that the risk-free rate of interest is 3% and the market risk premium is 7%.
What is the current common stock value for each of the companies listed walt disney ,oracle corporation ford motor company. what is the current common stock value? how many shares are issued?
Bank of Land lends you money today but requires no payments for 3 years. However, during this interest deferred period the loan accumulated interest at 6% rate, compounded quarterly. The bank amortizes the loan over five year period, requiring quarte..
New Town Instruments is analyzing a proposed project. The company expects to sell 2,100 inits, + or - 4 percent. The expected variable cost per unit is $270 and the expected fixed costs are $548,000. Cost estimates are considered accurate within a pl..
Danny Zuteck is considering an investment which will cost him $120,000. The investment produces no cash flows for the first year. In the second year the cash inflow is $35,000. This inflow will increase to $55,000 and then to $75,000 for the followin..
Bright Sun, Inc. sold an issue of 30-year $1,000 par value bonds to the public. The bonds had a 11.14 percent coupon rate and paid interest annually. It is now 9 years later. The current market rate of interest on the Bright Sun bonds is 8.82 percent..
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