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In August, 2011, Warren Buffett decided to make an investment in Bank of America by purchasing a large amount of preferred stock. The terms of the investment were that Bank of America would pay Buffett a fixed dividend of $300 million every year and that the investment would last indefinitely. (Because the transaction had no maturity or end date, it can be considered a perpetuity.) In prior deals with General Electric and Goldman Sachs, Buffett had demanded a 10% rate of return. If he had wanted to achieve a 10% rate of return on his Bank of America investment, how much would he have paid for the Bank of America preferred stock? (Note that 10% was not the actual rate Buffett used for this transaction; we'll compare the answer we get for this problem to the transaction's actual terms in class on Friday.)
Use the information given below and consider portfolio weights of .60 in stocks and .40 in bonds. Determine the rate of return on the portfolio in each scenario?
How much would you have to invest today to receive:
You have discovered 3 investment choices for a one year deposit: 10% APR compound monthly, 10% APR compounded annually, and 9 percent APR compounded daily.
after which growth should be at a constant rate of 6%. The last dividend paid was $1.00. What is the value Per share of your firm's stock?
You've a chance to buy an annuity that pays $5,000 at the beginning of each year for 5 years. What is the most you should pay for the annuity?
In 2009, a $5 certificate from 1896 was sold for $10,500. What was the annual increase in the value of the certificate?
West Coast Sports has total sales of $318,000, cost of goods sold of $241,000, and an average receivables balance of $38,200. How long on average does it take to collect payment from a customer?
Neon Company's stock returns have a covariance with market portfolio of 0.031. The standard deviation of the returns on the market portfolio is 0.16, and expected market risk premium is 8.5%.
Computation of the standard deviation of the portfolio and What proportion of the portfolio is invested in the risky asset
Telecom Systems can issue debt yielding 12 percent. The company is in a 30 percent bracket. What is its aftertax cost of debt?
What is the theoretical value of the futures contract? Show all working. Given the market price of S&P 500 contract, is arbitrage possible? Describe the transactions that should be undertaken and calculate the profit that would be made per contract..
Gary's Pipe and Steel corporation expects sales next year to be $800,000 if the economy is strong, $500,000 if the economy is steady, and $350,000 if the economy is weak.
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