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Suppose that the Johnson family has the option of purchasing two bonds. • Bond A is a $4000 10% 10 year bond paying annual coupons with redemption value $2000, which can be purchased at a premium for $3000. This bond can optionally be sold at the end of the 5th year for 6,000. • Bond B is a $4000 10% 10 year bond paying annual coupons with redemption value $3000, which can be purchased at a discount for $2000. Suppose further that this bond has a lockout period of 5 years, after which a put option can be placed at the end of years {6, 7, 8, 9} for put premium of $150. Explain to the Johnson family which bond option you would recommend they invest in, and at which time (if any) they should exercise their put and/or selling option. What are their gains in terms of yield rates depending on the bond they choose and which put option they choose to exercise (in the case of Bond B), or if they choose to sell (in the case of Bond A) ?
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The Jamesway Printing Corporation has current assets of 3.0million.Of this total, 1.0 Million is Inventory, 0.5 million iscash, 1.0 million is accounts receivable, and the balance is marketable securities. What are the current and quick ratios for Ja..
The conditions under which an employer may desire to establish a profit sharing plan. Assume that an employer has had a profit sharing plan for several years and the reactions of the employees toward the plan have been unsatisfactory. The design flex..
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Student Pleasers, Inc. issues $5 million (face value) in commercial paper, at a discount yield of 7.8%. The maturity is 270 days. Compute the price paid by investors for the paper. (solve to the nearest dollar). After computing the price, compute the..
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Sparks Electrical has just won the contract to wire a new high rise office building to be built in Phoenix. The contract requires the purchase and installation of 1,125 thousand feet of copper wire. A properly constructed cross hedge is established b..
A firm is expected to pay a dividend of $2.65 next year and $2.80 the following year. Financial analysts believe the stock will be at their price target of $45 in two years. Compute the value of this stock with a required return of 12.6 percent.
The current stock price of Oracle is $31 and the stock does not pay dividends. The instantaneous riskfree rate of return is 5%. The instantaneous standard deviation of Oracle's stock is 30%. You wish to purchase a call option on this stock with an ex..
Value the present value of a firm’s tax saving due to new debt that they will add for an add on project that will last for three years. The project will add debt today of 75 million and they will reduce debt on a fixed schedule to 50 million in year ..
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