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a. Suppose a U.S. Treasury bill, maturing in one year, can be purchased today for $92,500. Assuming that the security is held until maturity, the investor will receive $100,000 (face amount). Determine the rate of return on this investment.
b. Suppose a National Telephone and Telegraph (NTT) Company bond, maturing in one year, can be purchased today for $975. Assuming that the bond is held until maturity, the investor will receive $1,000 (principal) plus 7 percent interest (that is, 0.07 $1000 = $70). Determine the rate of return on this investment.
c. Determine the implied risk premium on NTT bonds.
Shelly Inc. bonds have a coupon rate of 10%. The bonds mature in 10 years. Their par value is $1,000 if your required rate of return is 12%. What is the difference in value of the bond if its coupon is paid semiannually compared to annually?
Erna Corp. has 7 million shares of common stock outstanding. The current share price is $79, and the book value per share is $6. Erna Corp. also has two bond issues outstanding. Which are more relevant, the book or market value weights? Market value ..
A firm uses only debt and equity in its capital structure. The firm's weight of debt is 40 percent. The firm could issue new bonds at a yield to maturity of 9 percent and the firm has a tax rate of 30 percent. If the firm's WACC is 11 percent, what i..
What annual rate of return is earned on a $3,200 investment when it grows to $6,900 in twenty years?
Using each of the four categories of risk, develop an analysis of how financial management techniques or policies can be used to mitigate each of the risks.
What is the stock’s intrinsic value if g= 20% for 3 years before achieving long-term growth of 5%. Its required rate of return is 10%. Last dividend was $2. What is its terminal price?
An ordinary annuity has an interest rate of 10% and a future value of 80.00. What would be the future value of this same annuity, if it were an annuity due instead of a regular annuity? The future value of this annuity due is $
When, where, and why did the Debt Crisis start?
Suppose that the annual interest rate is 2.0 percent in the United States and 4 percent in Germany, and that the spot exchange rate is $1.60/€ and the forward exchange rate, with one-year maturity, is $1.58/€. Assume that an arbitrager can borrow up ..
Summer Tyme, Inc., is considering a new 6-year expansion project that requires an initial fixed asset investment of $2.862 million. The fixed asset will be depreciated straight-line to zero over its 6-year tax life, after which time it will be worthl..
What is the net present value of a project with the following cash flows if the discount rate is 15 percent?
Vedder, Inc., has 6.1 million shares of common stock outstanding. The current share price is $61.10, and the book value per share is $4.10. Vedder also has two bond issues outstanding. Assume that the overall cost of debt is the weighted average of t..
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