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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.)
What constitutes total risk, and how is it measured? Of the two components of total risk, discuss which one investors can eliminate? Explain the remaining risk, and how is it measured?
The Landers Corporation needs to raise $2.00 million of debt on a 10-year issue. If it places the bonds privately, the interest rate will be 14 percent. Forty five thousand dollars in out-of-pocket costs will be incurred. For each plan, compare the n..
You just started working full-time, earning $100,000 per year. Your goal is to have $5 million in your 401(k) plan by your 61st birthday (i.e., 40 years from today). Assume 3% inflation per year.
Sanborn Corp. is comparing two different capital structures. Plan I would result in 9,000 shares of stock and $80,000 in debt. Plan II would result in 7,500 shares of stock and $120,000 in debt. The interest rate on the debt is 8 percent.
The target capital structure for QM Industries is 37 percent common stock, 9 percent preferred stock, and 54 percent debt. If the cost of common equity for the firm is 18.6 percent, the cost of preferred stock is 10.6 percent, the before-tax cost of ..
Suppose that the exchange rate is 100 yens per dollar. If the yen appreciates 20% against the dollar, how many yens would a dollar buy tomorrow?
A stock has a beta of 1.2. The risk free rate is 5.1% and market return is 13.6%. What’s the market risk premium? What's the expected return of the stock under CAPM?
You have the opportunity to buy the right to be paid $600 every 6 months for the next 3 years with an interest rate of 3.6 percent compounded semiannually. At what price do neither you nor the seller make any money on this deal, assuming no transacti..
Explain the difference between the Security Market Line (SML) and the Capital Market Line (CML). The treasury department of a large Fortune 500 corporation would like to estimate the company’s cost of capital in order to make capital budgeting decisi..
Fun Toy Corporation estimates that there is 25% chance of a recession economy next year, a 50% chance of a normal economy next year, and a 25% chance of a boom economy next year. The corporation will exist until the end of next year and then it will ..
Infinity Designs, an interior design company, has experienced a drop in business due to an increase in interest rates and a corresponding slowdown in remodeling projects. To stimulate business, the company is considering exhibiting at the Home and Ga..
What test can be used to test the hypothesis that an increase in amount of sleep will change the number of medical errors per day?
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