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The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). (B) Two years from now, the YTM on your bond has declined by 1 percent, and you decide to sell. What price will your bond sell for? (C) What is the HPY on your investment?
A borrower has a 5% chance of default on a $100 loan; If default occurs, the bank gets $60 back in principal and no interest; The bank sets the rate on the loan expecting 6% (3% inflation + 3% real) What is the interest rate the bank charges this bor..
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.64 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be w..
Pybus, Inc., is considering issuing bonds that will mature in 19 years with an 7 percent annual coupon rate. Their par value will be $1000, and the interest will be paid semiannually. If they receive a A rating, the yield to maturity on similar A bon..
Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of a line of health care and pharmaceutical products. Below you will find selected information from Value Line. Use the Value Line estimated 2009 figures as the ac..
Thirsty Cactus Corp. just paid a dividend of $1.50 per share. The dividends are expected to grow at 35 percent for the next 6 years and then level off to a 6 percent growth rate indefinitely. Required: If the required return is 13 percent, what is th..
A firm purchases materials on terms of 3/15, net 40 and it can borrow the funds from a bank at an APR of 30%. Should the firm use the bank loan by taking the discount or the full credit period by giving up the discount? Show your work including nomin..
What is the internal rate of return's assumption about how cash flows are reinvested? Crandal's flotation expense on the new bonds will be $50 per bond. Crandal's marginal tax rate is 35%. What is the pre-tax cost of debt for the newly-issued bonds?
Will purchased 5 futures contracts on corn. The contract size is 5,000 bushels and the price is quoted in cents per bushel. Assume the initial margin requirement is 5.5 percent of the contract value. What is the amount of the initial margin if the fu..
Bond A has a coupon rate of 4%. Bond B has a coupon rate of 14%. Both bonds have 10 years to maturity, make semiannual payments, and have a YTM of 8%. If interest rates suddenly rise by 2%, what is the percentage price change of these bonds? What if ..
Minnesota Metal Forming Company has just invested $500,000 of fixed capital in a manufacturing process, which is estimated to generate an after-tax annual cash flow of $200,000 in each of the next 5 years. At the end of year 5, no further market for ..
You win a scratch off lottery ticket that promises to pay an initial payment of 1,000 this year and grow at a rate of 5% forever. If the discount rate is 6%, what is the present value of this investment?
Potential applicants of the break-even model includes : a. optimizing the cash-marketable securities possession of a firm b. replacement for time-adjustment capital budgeting techniques c. pricing policy d. all of the above
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