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Ron and Mary are investors and they will be retiring in the next 5 years. They have a conservative risk tolerance. Which asset allocation would most fit their retirement portfolio needs, and why? A) 90% equities and 10% fixed income B) 50% equities and 50% cash/cash equivalents c) 70% fixed income and 30% cash/cash equivalents
You manage an equity fund with an expected risk premium of 11.2% and a standard deviation of 26%. The rate on Treasury bills is 4.2%. Your client chooses to invest $70,000 of her portfolio in your equity fund and $30,000 in a T-bill money market fund..
Calculate the net present value (NPV) for a 25-year project with an initial investment of $20,000 and a cash inflow of $2,000 per year. Assume that the firm has an opportunity cost of 16%. Comment on the acceptability of the project.
A homeowner took out a 30-year, fixed-rate mortgage of $310,000. The mortgage was taken out 10 years ago at a rate of 7.50 percent. If the homeowner refinances, the charges will be $2,500. What is the highest interest rate at which it would be benefi..
Show that the borrower’s periodic outlay for a standard sinking fund method repayment at rate j is larger than the level outlay under amortization method with the interest rate i, if i > j.
What is the relationship between the equity account on the Balance Sheet and Earnings (Net Income) reported on the Income Statement?
Explain under what circumstances the book value cost of capital should be used. Explain why you answered as you did. Explain under what circumstances the market value cost of capital should be used. Explain why you answered as you did.
Royal Troon Inc is planning to lease a computer for $6,500 per annum, payable in advance, for a period of 4 years. The lease will cover maintenance expenses. Royal Troon’s chairman feels that if he buys the same computer he should be able to sell it ..
Sky Corporation recently reported an EBITDA of $ 31.1 million and net income of $9.7 million. The company had $ 6.8 in interest expense, and its average corporate tax rate was 35%. What was its depreciation and amortization expense? Please show your ..
App Store Co. issued 15-year bonds one year ago at a coupon rate of 7.1 percent. The bonds make semiannual payments. If the YTM on these bonds is 5.4 percent, what is the current bond price?
Eugene began to save for his retirement at age 32, and for 10 years he put $ 275 per month into an ordinary annuity at an annual interest rate of 8% compounded monthly. After the 10 years, Eugene was unable to make the monthly contribution of $ 275, ..
Which of the following loan requests by an off-campus pizza parlor would be unacceptable, and why? a. To buy cheese for inventory b. To buy a pizza heating oven c. To buy a car for the owner d. To repay the original long-term mortgage used to buy the..
Calculate the WACC based on the following information. Assume tax rate is 35%. Debt: $10M face value, current price $10.8M, 6.4% coupon rate, 25 years to maturity, semiannual coupon payment. (Hint: cost of debt is YTM of the bond) Equity: 495,000 sha..
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