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Default Risk Premium A company's 5-year bonds are yielding 7.8% per year. Treasury bonds with the same maturity are yielding 5.15% per year, and the real risk-free rate (r*) is 2.05%. The average inflation premium is 2.7%, and the maturity risk premium is estimated to be 0.1(t - 1)%, where t = number of years to maturity. If the liquidity premium is 1.05%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places. %
Which of the following statements about the net present value method of selecting projects is true?
NPV A project has an initial cost of $53,725, expected net cash inflows of $13,000 per year for 10 years, and a cost of capital of 12%. What is the project's NPV? (Hint: Begin by constructing a time line.) Do not round your intermediate calculations...
What is the standard deviation of the random variable? What is the mean of the random variable?
You just paid $354,000 for a policy that will pay you and your heirs $12,600 a year forever. What rate of return are you earning on this policy?
Suppose that General Motors issued a bond with 10 years until maturity, a face value of $1,000, and a coupon rate of 7% (annual payments). The yield to maturity on this bond when it was issued was 6%. Assuming the yield to maturity remains constant, ..
A major manufacturer decided to put one of its divisions up for sale because managerial information showed the components produced by this division is losing money. A group of employees in the division purchased it. Under the new ownership, the divis..
In 1970, Walmart offered 300,000 shares of its common stock to the public at a price of $16.50 per share. Since that time, walmart has had 11 two for one stock splits. What is the return on investment for investors who purchased the stock in 1970 (ov..
Determine the expected rate of return on equity next year for Nguyen under each of the working capital policies. Which policy is riskier? Cite specific evidence to support this contention.
Worcester Tool Company is a large, U.S.-based, multinational corporation with subsidiaries in eight different countries. Explain the various ways in which Citigroup could facilitate Worcester’s flow of funds, and identify the type of financial market..
A local engineering firm just bought a new office building (CCA=4%) for $500,000. Useful life of 30 years is expected with no salvage value. If tax rate is 40%, and required rate is 10%, then what is the present value of this building's tax shields?
Why do the sponsors and the banks want IFC involved with the deal of mozal project? What does IFC bring to the deal? Will IFC and the sponsors (Alusaf and IDC) share similar objectives?
Last year the Selling Corporation had earnings before interest and taxes (operating income) equal to $1 million. It paid $200,000 in dividends to its stockholders and $100,000 in interest to its creditors. During the year, the company also repaid a b..
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