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Determinants of Interest Rate for Individual Securities A particular security's default risk premium is 3.50 percent. For all securities, the inflation risk premium is 2.25 percent and the real interest rate is 3.00 percent. The security's liquidity risk premium is .70 percent and maturity risk premium is .75 percent. The security has no special covenants. What is the security's equilibrium rate of return?
Bob has a MasterCard with an annual fee of $25, 18% interest, and a $1,000 credit limit. He always pays the total outstanding balance monthly. His most recent monthly statement lists last month's payment, new charges this month totalling $1,500, and ..
Lynn Ally, owner of a local Subway shop, loaned $42,000 to Pete Hall to help him open a Subway franchise. Pete plans to repay Lynn at the end of 10 years with 6% interest compounded semi annually.
If in the opinion of a given investor a stock's expected return exceeds its required return, this suggests that the investor thinks
Scott Investors, Inc. is considering the purchase of a $360,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line method. The market value of the computer will be $60,000 in f..
A preferred stock is paying $6 per annum and is callable after 7 years. The yields for similar instruments are 8%. Derive the price of the preferred stock. What is its price, if it is not callable?
A semi annual coupon bond with face value of $1000 has a coupon rate of 8% and matures in 12 years. The market-determined discount rate on this bond is 9%. What is the price of the bond? Round to the penny. What is the coupon rate of a bond with a fa..
What are the major expenses associated with making consumer loans? What is the average size of consumer installment loans at small banks? How does loan size affect loan rates that banks charge on consumer loans?
Prices of zero-coupon bonds reveal the following pattern of forward rates: 0f1 = y1 = 5%, 1f1 = 7%, 2f1 = 8%. In addition to the zero coupon bonds, investors also may purchase a 3-year bond making annual coupon payments of $60 with par value of $1,00..
Money Corp. frequently uses a forward hedge to hedge its Malaysian ringgit (MYR) receivables. For the next month, Money has identified its net exposure to the ringgit as being MYR1,500,000. The 30-day forward rate is $.23. Based on this information, ..
Jungle Recording Co. reported after tax earnings of 4,000,000 availed to common stock this year. From that the company pays a dividend of $4.00 on each of its 1,000,000 common shares outstanding. What is the before tax weighted average cost of the ca..
DEC Technologies is a privately held developer of advanced security systems based in Boston. As part of your business development strategy, in late 2008 you initiate discussions with DEC’s founder about the possibility of acquiring the business at th..
Hopefully, this will all help us to learn together and as our week progresses. Please let me know if it does. Briefly explain what you understand by the accruals concept. Briefly describe the difference between a statement of cash flows and a cash fl..
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