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Suppose you have an initial wealth of $10,000 to invest. A broker phones you with some information on certain junk bonds. If the company issuing the bonds posts a profit this year, it will pay you 40 percent interest rate on the bond. If the company files for bankruptcy, you will lose all you invested. If the company breaks even, you will earn 10 percent interest rate. Your broker tells you there is a 50 percent chance that the company will break even and a 20 percent chance that the company will file for bankruptcy. Your other option is to invest in a risk-free government bond that will guarantee 8 percent interest for 1 year.
Smith & Sons, Inc., sold $100,000 face value, six percent coupon rate, four-year bonds, for an aggregate issue price of $96,000. Calculate the total interest expense to be recorded by the company over the four-year life of the bonds.
A bond with 30 years to maturity has a face value of $1000. The bond pays a 5% semi annual coupon, and the bond has a 7 percent nominal yield to maturity. What is the price of the bond today?
If corporate bonds offer 9.75% yields, what must municipals offer for the investor to prefer them to corporate bonds?
Your portfolio allocates equal amounts to three stocks. All three stocks have the same mean annual return of 12 percent.
The expected annual maintenance expense for a new piece of equipment is $10, 000. Is there a different selection before and after income taxes are considered?
rs will decrease and the WACC will increase due to the flotation costs of new equity.
A quality control analyst for a light bulb manufacturer is concerned that the time it takes to produce a batch of light bulbs is too erratic. Accordingly, the analyst randomly surveys 10 production periods each day for 14 days and records the sample ..
Could I Industries just paid a dividend of 1.10 per share. The dividends are expected to grow at a 20% rate for the next 6 years and then level off to a 4% growth rate indefinitely. If the required rate is 12%, what is the value of the stock today?
what is the component cost of debt for use in the WACC calculation?
You are considering two mutually exclusive projects. Project A has cash flows of -$125,000, $51,400, $52,900, and $63,300 for years 0 to 3, respectively. Should you accept or reject these projects based on IRR analysis?
The rate of return on Cherry Jalopies, Inc., stock over the last five years was 23 percent, 11 percent, -5 percent, 7 percent, and 10 percent. Over the same period, the return on Straw Construction Company’s stock was 16 percent, 24 percent, -6 perce..
A health system has forecast net patient revenue in the first 3 months of the year as follows (figures in millions): January, $200; February, $140; March, $200. 70% of services are usually paid for in the month that they take place, 20% in the follow..
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