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An IBM bond promising to pay $100,000 costs $90,090. Time-equivalent Treasuries offer 8%.
(a) Setting aside the risk neutrality and perfect markets assumption for this question only, what can you say about the risk premium, the default premium, and the liquidity premium?
(b) Returning to our assumption that markets are risk neutral, but still setting aside the perfect markets assumption for this question, what can you say about the risk premium, the default premium, and the liquidity premium?
(c) Assuming that the liquidity premium is 0.5%, what can you say about the risk premium, the default premium, and the liquidity premium?
What is the relationship between present value and future value? What is the difference between an ordinary annuity and an annuity due? Give examples of each.
Kolby’s Korndogs is looking at a new sausage system with an installed cost of $625,000. This cost will be depreciated straight-line to zero over the project’s 5 year life, at the end of which the sausage system can be scrapped for $95,000. The sausag..
As of March 1, 2015, the exchange rate between the Brazilian real and U.S. dollar is R$3.19/$. Assume that the consensus forecast for the U.S. and Brazil inflation rates for the next 1-year period is 2.0% and 20.0%, respectively. What would you forec..
What are the portfolio weights for a portfolio that has 200 shares of Stock A that sell for $97 per share and 175 shares of Stock B that sell for $134 per share?
Siena Normann is buying her first new car. The purchase price is $22,350 and she’ll put $2,350 down. She will finance the car over five years at 7.25%. Her twin sister, Reese, is buying the same car, but because she has a higher credit score, her rat..
Assess the ethical requirements as outlined in the Sarbanes-Oxley Act, indicating whether or not you believe the requirements are adequate to ensure integrity in financial accounting and reporting activities. Suggest improvements that may be needed w..
Genetic Insights Co. purchases an asset for $19,193. This asset qualifies as a seven-year recovery asset under MACRS. The seven-year fixed depreciation percentages for years 1, 2, 3, 4, 5, and 6 are 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, and 8.93%, r..
Meyer & Co. expects its EBIT to be $66,000 every year forever. The firm can borrow at 5 percent. Meyer currently has no debt, and its cost of equity is 11 percent. If the tax rate is 35 percent, what is the value of the firm? What will the value be i..
Tool Makers, Inc. uses tool and die machines to produce equipment for other firms. The initial cost of one customized tool and die machine is $850,000. This machine costs $10,000 a year to operate. Each machine has a life of 3 years before it is repl..
Blue Water Systems is analyzing a project with the following cash flows. The cash flows, in order, are -$236,000 (initial cost), $137,400 (year 1 CF), $189,300 (year 2 CF) and -$25,000 (year 3 CF). Should this project be accepted based on the discoun..
Write a 700- to 1,050-word paper in which you explain roles of limited liability corporations, limited liability partnerships. If you were establishing your own business, under what circumstances would you choose one instead of the other?
Which of these three bonds offers the highest current yield? Which one has the highest yield to maturity?
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