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An investor purchased a convertible bond for $6000 four years ago. The bond has a face value of $10,000 and a bond interest rate of 8% payable semiannually. The investor can sell the bond now for $7500. If the investor keeps the bond, she thinks she can sell it for $8000 one year from now, $9100 two years from now, or get $10,000 upon maturity 3 years from now. What should she do if her MARR is 12% per year compounded semiannually?
Compute the payoff schedule for the call option using the following stock prices, S, and draw a graph of the payoff schedule and Compute the payoff schedule for the call option using the following stock prices, S, and draw a graph of the payoff sched..
A project has the following estimated data: price = $72 per unit; variable costs = $46 per unit; fixed costs = $21,000; required return = 15 percent; initial investment = $42,000; life = six years. Ignoring the effect of taxes, what is the accounting..
You own a bond with an annual coupon rate of 6% maturing in two years and priced at 88%. Suppose the probability is 11% that at maturity the bond will default and you will receive only 41% of the promised payment. Assume a face value of $1,000. What ..
Given an optimal capital structure that is 50% debt and 50% common stock, calculate the weighted average cost of capital for stone corp.
Julie Horton, CEO of Horton Mfg., wants the company to reduce the percent of generators that customers return. In June, the company shipped 9,000 generators, and 2,610 were eventually returned. What percent of the June shipment was eventually returne..
Lobo Banks normally provides term loans that require repayment in a series of equal annual installments. If a $10 million loan is made, what would be the annual end-ofyear payments.
Financial institutions that rely on REPOs are forced to go back to the market regularly to roll over maturing paper. This is a risk to the firm since fear of lenders can create a severe liquidity crisis for the borrowing firm.
The school board also discusses how to invest some of its reserves. They want to invest 2.5 million dollars in a mixture of 2 types of bond funds: a corporate bond fund paying 5% interest per year, and a municipal bond fund paying 6% interest per yea..
ABC Co. presently does not pay a dividend, but is expected to pay a dividend in year 3 of $.75 and the dividend then will increase at a constant rate of 5% annually. The rate of return is 10%. What is an estimate of the price of the stock today?
Assume that a portfolio of corporate bonds is managed to maintain targets for modified duration at convexity. Explain how the portfolio could include both callable and non callable bonds while maintaining the targets. Describe one advantage and one d..
The maintenance and operations costs for a piece of equipment are estimated to be $700 the first month and increase by $20 per month over the equipment's 3 year life. For budgeting purposes, the owner wants to set aside a uniform amount each month to..
A share of stock with a beta of 0.85 now sells for $70. Investors expect the stock to pay a year-end dividend of $2. The Treasury bill rate is 2 percent and the market risk premium is 5 percent. If the stock is perceived to be fairly priced today, wh..
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