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(A) A married couple from California is in the 31% Federal tax bracket and the 10% California tax bracket. They are considering a 51⁄2% Arizona municipal bond (Federal tax-free), a 5% California bond (double tax-free) or a 71⁄2% corporate bond (fully-taxable). Which bond offers the highest after-tax interest rate? (Please show at least 3 digits.)?
(B) A bond with a par value (a.k.a. face value) of $1,000 that pays 8% is currently priced at $1,100. What is the nominal interest rate? Calculate the current yield. (Please show at least 3 digits.)
Linus is 18 years old now, and is thinking about taking a 5-year university degree. The degree will cost him $25,000 each year. After he's finished, he expects to make $50,000 per year for 10 years, $75,000 per year for another 10 years, and $100,000..
(cost of debt) Belton Distribution Company is issuing a $1,000 par value bond that pays 7.0 percent annual interest and matures in 15 years that is paid semi annually. Investors are willing to pay $958 for the bond. The company is in the 18 percent m..
Based on what you have learned so far this semester (Investments-Bodie, Kane, Marcus), do you believe that U.S. equity markets are efficient? Explain.
In the third column, calculate the difference by subtracting 2008 data from 2009 data. For instance, with cash, this would be $22,995 - $41,851 = -$18,856. In the fourth column, calculate the percentage change from the 2008 number. For instance, with..
A researcher placed interviewers at multiple entrances and exits to a mall and asked them to interview a wide sample of mall visitors including parents, couples, and singles. In the process of verifying the responses, the researcher found that one in..
Assessment 2 aims to provide students with an opportunity to analyse various investment alternatives based on the respective risk and return so as to choose the most appropriate investment opportunity. Calculate the weights on the optimal risky portf..
The Chung Chemical Corporation is considering the purchase of a chemical analysis machine. Although the machine being considered will result in an increase in earnings before interest and taxes of $35,000 per year, it has a purchase price of $100,000..
Two firms each have reported EPS of $5 per share. Firm A has reported that 80% of their earnings are “permanent” earnings, while 20% are one-time “transitory” earnings. Firm B has reported that 60% of their earnings are “permanent” earnings, while 20..
A woman purchases a 10-year par bond with 8% semi-annual coupons. The bond is priced to yield 7.5% converted semi-annually. The coupons are reinvested in a fund paying 7.0% nominal, converted semi-annually. What is her nominal annual yield on this in..
Suppose a bond which makes annual coupon payments has a coupon rate of 10 percent and 5 years to maturity. You wish to purchase one of these bonds and you require an 11 percent return on your investment. What price should you be willing to pay for th..
We are examining a new project. We expect to sell 5,300 units per year at $67 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be $67 × 5,300 = $355,100. The relevant discount rate is 16 perce..
Assume that you are the portfolio manager of the SF Fund, that contains the following stocks. The required rate of return on the market is 11.00% and the risk-free rate is 5.00%. What rate of return should investors require on this fund? Amount Beta ..
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