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Consider an FI that issues $200 million of liabilities with two years to maturity to finance the purchase of $200 million of assets with a one year maturity. Suppose that the cost of funds for the FI's is 5 percent per year and the interest return on the assets is 9 percent per year.
A. Calculate the FI's profit spread and dollar value of profit in year 1
B. Calculate the profit spread and dollar value of profit in year 2 if the FI can reinvest its assets at 9 percent.
Jack’s Construction Co. (JCC) has 80,000 bonds outstanding that are currently selling at par (face) value. Bonds with similar characteristics are currently yielding 8.5%. The company also has 4 million shares of common stock outstanding. What is Jack..
How much would be in your savings account in 7 years after depositing $200 today if the bank pays 10 percent per year?
Ernie Manufacturing has projected sales of $155 million next year. Costs are expected to be $100 million and net investment is expected to be $17.5 million. Each of these values is expected to grow at 14 percent the following year, with the growth ra..
Compute the cost of not taking the following cash discounts. (Use a 360-day year. Do not round intermediate calculations. Input your final answers as a percent rounded to 2 decimal places.) Cost of Lost Discount
The 2015 income statement for Duffy’s Pest Control shows that depreciation expense was $205 million, EBIT was $520 million, and the tax rate was 30 percent. Duffy’s free cash flow for the year was $433 million. Calculate the end-of-year balance for n..
1. suppose that the market contains three stocks a b and c and two systematic risk- factors 1 and 2 that have the
What is the problem of a free rider, and how does it relate to public goods? Provide an example of such a problem, and make a couple suggestions on how to mitigate the free rider issue.
Two students graduate in December 2016 at an age of 22. Student A immediately starts saving $300 per month until they are 35 years old, and does not save any money after that. Student B does not start saving until they are 35 years old, and then save..
An investor in the 28 percent tax bracket is trying to decide which of the two bonds to purchase. One is corporate bond carrying an 8 percent coupon and selling at par. The other is a municipal bond with a 5 ½ percent coupon and it, too, sells at par..
Darshak won a $1,000,000 lottery which will pay $5,000 at the beginning of each month for the next 30 years. If the payments were made at the beginning of each year for the next 30 years rather than at the beginning of each month, how much would the ..
Heavy Duty Company, a manufactured of power tools, decides to offer a rebate of $130 on its 16-inch mid-range chain saw, which currently has a retail price $490. The profit margin for Heavy Duty before the rebate is $180. Based on the information, is..
During periods of high inflation, U.S. firms have strong incentives to purchase short-lived assets and frequently replace them, rather than investing in long-lived assets. True, False, Uncertain and explain
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