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Default Risk Premium The real risk-free rate, r*, is 2.25%. Inflation is expected to average 2.5% a year for the next 4 years, after which time inflation is expected to average 3.4% a year. Assume that there is no maturity risk premium. An 11-year corporate bond has a yield of 9.8%, which includes a liquidity premium of 0.45%. What is its default risk premium? Round your answer to two decimal places. %
Firms U and L each have the same amount of assets, and both have a basic earning power ratio of 20%. Firm U is unleveraged, i.e., it is 100% equity financed, while Firm L is financed with 50% debt and 50% equity. Firm L's debt has a before-tax cost o..
If firm A has a higher debt-to-equity ratio than firm B, then
Describe recent situations when you had to use persuasion to motive others on a team. If you were successful, explain strategies or techniques from this chapter that you used to persuade your audience. If you were not successful, identify a strategy ..
Harrison Clothiers' stock currently sells for $40 a share. It just paid a dividend of $3 a share (that is, D0 = 3). The dividend is expected to grow at a constant rate of 7% a year.
Joe secured a loan of $12,000 five years ago from a bank for use toward his college expenses. The bank charges interest at the rate of 4%/year compounded monthly on his loan. Now that he has graduated from college, Joe wishes to repay the loan by amo..
Grey Plume, Inc is issuing bonds with a $1,000 par-value paying $90 annually that will mature fifteen years from today. The bond is currently selling for $960. Calculate: Coupon Rate, Current Yield, Yield To Maturity
A stock is expected to pay a dividend of $3.00 the end of the year (that is, D1 = $3.00), and it should continue to grow at a constant rate of 4% a year. If its required return is 14%, what is the stock's expected price 1 year from today? Round your ..
Hollywood Shoes would like to maintain their cash account at a minimum level of $60,000, but expect the standard deviation in net daily cash flows to be $5,000; the effective annual rate on marketable securities to be 6.00 percent per year; and the t..
A zero-coupon bond with face value $1,000 and maturity of 300 days sells for $988.22. a.) What is the bond's nominal yield to maturity? b.) What is the bond's annualized yield-to-maturity?
Which the following statement with respect to the depreciation of property under MACRS is incorrect? Under the half-year convention, one-half year of depreciation is allowed in the year the property is placed in service. The cost of property to which..
Economics has a notoriously bad reputation among students. They assume it will be dry, boring, and not relevant to their lives. They also think it's hard because the course content must be understood rather than memorized. Why do you think economics ..
Financial institutions that rely on REPOs are forced to go back to the market regularly to roll over maturing paper. This is a risk to the firm since fear of lenders can create a severe liquidity crisis for the borrowing firm.
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