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A particular security’s equilibrium rate of return is 9 percent. For all securities, the inflation risk premium is 3.25 percent and the real risk-free rate is 2.2 percent. The security’s liquidity risk premium is 0.95 percent and maturity risk premium is 0.95 percent. The security has no special covenants. Calculate the security’s default risk premium. (Round your answer to 2 decimal places. (e.g., 32.16))
Default risk premium %
If the defender can be sold for $80,000 today but you decide to keep the defender, what is the proper treatment of the $80,000 using the opportunity cost approach? Explain how Opportunity cost is used when evaluating projects using the opportunity co..
Project K costs $35,000, its expected cash inflows are $12,000 per year for 8 years, and its WACC is 9%. What is the project's payback?
You bought a share of 6.40 percent preferred stock for $96.68 last year. The market price for your stock is now $100.92. What is your total return for last year?
An investor has designed a risky portfolio based on two stocks, A and B. The standard deviation of return on stock A is 20% while the standard deviation on stock B is 30%. The correlation coefficient between the return on A and B is 0.25. If the inve..
Toys R Us can purchase mechanisms to be used in making certain toys for $60 each. They can manufacture their own mechanisms for $7000 per year fixed cost plus $35 for each mechanism, provided they purchase a machine for $100000 that will have a 10 ye..
The annualized 6-month spot rate is 4% and the annualized 12-month spot rate is 6%. The annualized forward rate from the end of 6th month to the end of 12th month is 10%. Develop an arbitrage strategy using the spot rates and the forward rate.
The current spot exchange rate is 1 USD = 6.40 NOK, and the 90-day forward exchange rate is 1 USD = 6.50 NOK. The 90-day interest rate in Norway is 10%. Suppose that the covered interest rate parity holds. 3 What is the 90-day interest rate in the US..
Suppose that Texas Trucking (TT) has earnings per share of $3.55 and EBITDA of $55 million. TT also has 6 million shares outstanding and debt of $200 million (net of cash). Based upon the enterprise value to EBITDA ratio, the value of a share of Texa..
If an investment has a 20%(0.20) probability of returning $1,000; a 30%(0.30) probability of returning $1,500; and a 50%(0.50) probability of returning $1,800; the expected value of the investment is: Uncertainties that are not quantifiable: Suppose ..
Calculate the company's cost of equity capital using both the dividend capitalization model approach and the Capital Asset Pricing Model approach.
Each week you'll need to post a news story that is somehow related to one of the topics covered in during the week. Please post a link, and then give a quick summary which includes vocabulary from the week’s assigned readings.
You own a bond that is currently quoted at 97, has a face of $1,000, a coupon of 6% and matures in 10 years. You are considering selling the bond. Should you sell it if your discount rate is 7%? Explain. What is the lowest price for which you would ..
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