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If the yields on treasury bonds rise significantly but there is no change in the outlook for economic growth and profits (and no change in investor risk aversion level or required risk premium) the stock market should
A) soar as fast as the speed of high frequency trading
B) rise slightly
C) remain unchanged
D) rise intially and then fall in future years
E) fall
F) rise if the average probability of default for the 500 companies in the S&P 500 index as estimated by Bloombergs sophisticated computer model is less than the default rate implied by credit spreads
G) rise if the average probability of default for the 500 comapnies in the S&P 500 index as estimated by Bloombergs sophisticated computer model is greater than the default rate implied by credit spreads
H) rise if the average probability of default for the 500 comapnies in the S&P 500 index as estimated by Bloombergs sophisticated computer model is equal te default rate implied by credit spreads
You short-sell 500 shares of a stock for one year – i.e., you borrow and sell the shares at time t = 0, and you purchase and return the shares at time t = 1. At time t = 0, the ask and bid prices of the stock per share are 75.25 and 73.50, respective..
Prepare the journal entries on June 30, 2011, to record the interest and necessary adjustments for changes in fair value. Use the extended method demonstrated in Illustration A-2.
The investor takes $200,000 loan (at time zero) to purchase the machine at 8% interest rate. Loan has to be repaid by constant annual payments from year 1 to year 5 (5 payments). Assume 40% tax and minimum rate of return 10%. Calculate interest and p..
As a student at P.U., Bob Karp borrowed $12,000 in student loans at an annual interest rate of 9%. If Bob repays $1,500 per year, how long will it take him to repay the loan to the nearest year?
You own a stock portfolio invested 35 percent in Stock Q, 30 percent in Stock R, 20 percent in Stock S, and 15 percent in Stock T. The betas for these four stocks are .79, 1.17, 1.18, and 1.35, respectively. What is the portfolio beta?
You’re trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $11.2 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected..
Microtech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect Microtech to begin paying dividends, beginning with a dividend of $1.50 coming 3 years from toda..
Currently, Apple stock is trading at $132.54. The 1-month $130 Apple call option is trading at $4.55. Assume the risk-free rate is 0.15% (not 15%). Find the implied volatility.
At year-end 2013, Wallace Landscaping’s total assets were $1.8 million and its accounts payable were $450,000. Sales, which in 2013 were $2.1 million, are expected to increase by 20% in 2014. Total assets and accounts payable are proportional to sale..
S&P 500 index has a dividend yield of 3% today. The current index is trading at $1800 and the risk-free interest rate is 5% per annum with continuous compounding. An investor would like to enter into a short one-year forward contract on the index. Wh..
Determine how much $1,000 deposited in a savings account paying 8% compounded annually will be worth after 5 years. At an effective interest rate of 12%, a single sum invested today will double itself in approximately: Your bank balance is exactly $1..
Suppose you have $2,000 to invest for 4 years. Bank A is willing to pay 5% simple interest and Bank B is willing to pay 4% compounded monthly. Which bank pays the highest total interest? What is the value of the interest earned by the investor?
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