Concerned about uncertainty of the future interest rates

Assignment Help Financial Management

Reference no: EM131933696

Micron Inc. can invest $5,000,000 in a new technology. Micron’s CFO is concerned about uncertainty of the future interest rates. She believes that future interest rates may be either 12% or 7% into foreseeable future. The risk-neutral probability that interest rates will be at 7% is 60%. The one-year risk-free interest rate is 5%; the rate on a risk-free 20-year bond is 10% and the rate on an equivalent 20-year callable bond is 8.5%.

New project will provide Micron an annual cash flows of $570,000 per year for the next 20 years. Should Micron accept this project? Why or why not?

Reference no: EM131933696

Questions Cloud

Combined corporation after the offer announcement : what will happen to the price per share of a combined corporation after the offer announcement?

What is the expected value of the stock price : The probability the stock price will be 59 is 0.37, otherwise the stock price will be 69. What is the expected value of the stock price in 1 year?

Deciding whether to buy or lease piece of equipment : Carolina Inc. is deciding whether to buy or lease a piece of equipment. Analyst estimated the CFs associated with both options.

Variability of returns and volatility of returns : Distinguish between variability of returns and volatility of returns.

Concerned about uncertainty of the future interest rates : Micron Inc. can invest $5,000,000 in a new technology. Micron’s CFO is concerned about uncertainty of the future interest rates.

What quantity must you sell to break even : What quantity must you sell to break even. What would your profit be if you sold 50 units more than the break-even quantity?

Classify these stocks according to market capitalization : Classify these stocks according to their market capitalization. Which of the three would you classify as a growth? stock? Why?

What is minimum price hank would need to receive for car : What’s the minimum price Hank would need to receive for his car?

Determine your profit or loss from these transactions : Last year you sold short 400 shares of stock selling at $97.26 per share. Determine your profit or loss from these transactions.

User Account

All Pages