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Elizabeth Smart’s personal residence is condemned as part of the urbanization enlightened project. Her adjusted basis of the residence is $485,000. She receives condemnation proceeds of $465,000, and invests the proceeds in stocks and bonds. (a): Calculate Elizabeth’s realized and recognized gain or loss. (b): If the condemnation proceeds are $510,000, what is Elizabeth’s realized and recognized gain or loss? (c): What are Elizabeth’s realized and recognized gain or loss in (a) above if the house was a rental property?
Define and discuss the different dimensions (or aspects) of risk in the context of corporate projects. Which is the most relevant for investors? Of these dimensions, which is the company most likely to focus on and why?
A 15-year, 14% semiannual coupon bond with a par value of $1,000 may be called in 4 years at a call price of $1,075. The bond sells for $1,050. What is the bond's yield to maturity? What is the bond's current yield? What is the bond's capital gain or..
If the interest rate is lower in the U.S. than in the United Kingdom, and if the forward rate of the British pound is the same as its spot rate:
Six months ago, you purchased a tract of land in an area where a new industrial park was rumored to be planned. If you accept this offer, what will be your holding period return on this investment?
The Bluebird Company has a $10,000 liability it must pay three years from today. The company is opening a savings account so that the entire amount will be available when this debt needs to be paid. The plan is to make an initial deposit today and th..
Assume, instead that each year the chances that a worker will leave the firm, given he/she has not left to date, are 20% (i.e. the firms expected turnover rate for these sales positions is 20% per year). Which employee should it hire now? Use your sp..
A currency is currently worth $1.80 and has a volatility of 15%. The domestic and foreign risk-free interest rates are 5% and 2%, respectively. Use a two-step binomial tree to value a) a European four-month put option with a strike price of $1.79, an..
The return on the risky portfolio is 15%. The risk-free rate as well as the investor's borrowing rate is 10%. The standard deviation of return on the risky portfolio is 20%. If the standard deviation on the complete portfolio is 25%, the expected ret..
A corporation can have so much financial leverage that it finds it difficult to obtain additional credit. To reduce this problem a corporation may lease, rather than buy assets. This "off balance sheet financing" makes the corporation's financial pos..
Leasing Comment on the following remarks: Leasing reduces risk and can reduce a firm’s cost of capital. Leasing provides 100 percent financing. If the tax advantages of leasing were eliminated, leasing would disappear.
Why is the focus on cash flow important? Why not just look at a company's 'net income' amount? Explain your thoughts in detail and give examples as to why the net income and cash flow differ.
The current spot rate is C$1.380 and the one-year forward rate is C$1.311. The nominal risk-free rate in Canada is 5 percent while it is 9 percent in the U.S. Using covered interest arbitrage you can earn an extra _____ profit over that which you wou..
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