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Consider a 10-year zero coupon bond.
A. Using the bond pricing equation, P(y), illustrate the derivation (using calculus) of this bond’s modified duration. Note: the correct answer is an equation, not a number.
B. Assuming the yield-to-maturity is 5%, compute the bond’s modified duration.
C. Use your answer to part B to estimate the price of the bond and the percentage price change if interest rates instantaneously rise to 6%.
D. Use your answer to part B to estimate the price of the bond and the percentage price change if interest rates instantaneously decline to 4%.
E. How do the estimates from C. and D. compare to the true prices using the bond pricing equation P(y) if yields change to 6% and 4%? Is the estimate more accurate for part C. or D., and why?
Which of the following statements is most correct, holding other things constant, for Z Corporation's traded call options?
Bell Mountain Vineyards is considering updating its current manual accounting system with a high-end electronic system. While the new accounting system would save the company money, the cost of the system continues to decline.
A firm can lease a truck for 5 years at a cost of $42,000 annually. It can instead buy a truck at a cost of $92,000, with annual maintenance expenses of $22,000. The truck will be sold at the end of 5 years for $32,000. What is the equivalent annual ..
At a certain interest rate the present value of the following two payment patterns are equal:
VetVo Co. is considering making a new product. The expected salvage is $50,000. There is no change in net working capital.
What is the value today of a stock that will pay a dividend of $4.10 one year from now, a $4.70 dividend in year two and a dividend of $5 three years from now if its expected price in year three is $35? The stock has a required rate of return of 11%.
FOX's drama series Empire has an average rating of 4.2. If McDonald's runs six television spots on Empire over a two-month period,
An asset used in a four-year project falls in the five-year MACRS class (MACRS Table) for tax purposes. The asset has an acquisition cost of $6,400,000 and will be sold for $1,530,000 at the end of the project. what is the after tax salvage value of ..
The Dry Well has 6.25 percent preferred stock outstanding with a market value per share of $49 and a book value per share of $25. What is the cost of preferred stock? Casino Games Company preferred stock pays a perpetual annual dividend of 3.6% of it..
Suppose that Treasury bill returns follow a normal distribution with a mean of 4.1 percent and a standard deviation of 2.8 percent.
Based on this information, estimate Acort's WACC. What is Acort's equity cost of capital?
A chemical manufacturer is setting up capacity in Europe and North America for the next three years. What is the expected currency rate for Year 3 nodes?
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