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The Griggs Company issued bonds five years ago at $1,500 per bond. These bonds had a 25-year life when issued and the annual interest payment was then 15%. This return was in line with the required returns by bondholders at that point in time as described next:
Real rate of return................ 10%
Inflation premium 4
Risk premium 5
Total return 19%
Assume that 10 years later, due to bad publicity, the risk premium is now 8 percent and is appropriately reflected in the required return (or yield to maturity) of the bonds. The bonds have 15 years remaining until maturity. Compute the new price of the bond.
Briefly describe the use of stock options as a form of compensation plan. What are some potential problems with stock options as a form of compensation?
how long would you have to wait until you have accumulated enough money to buy the car under annual compounding?
You are cautiously bullish on a stock, currently priced at $10 per share. So, you buy 100 shares at $10 and sell a call option ("write a covered call option") with an exercise price of $12 for which you collect $1.20 per share. You were wrong, and th..
Individual Rehabilitation Services (IRS), Determine the minimum federal income tax liability and the taxes owed at the time of filing based on the following data:
Davis, Inc., currently has an EPS of $2.16 and an earnings growth rate of 7 percent. The benchmark PE ratio is 20. What is the target share price in 7 years?
Calculate the arithmetic and geometric average rates of return, respectively, of the stock.
Trevor Price bought 10-year bonds issued by Harvest Foods five years ago for $936.05. The bonds make semi-annual coupon payments at a rate of 8.4 percent. If the current price of the bonds is $1,048.77, what is the yield that Trevor would earn by sel..
Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next nine years because the firm needs to plow back its earnings to fuel growth. The company will pay a $12 per share dividend in 10 years and will..
If the construction materials estimate is $45 million with 50% probability, and $100 million with 50% probability, should the project proceed?
A $2,000 11% ten-year bond has semiannual coupons and is sold to yield 5.2% convertible semiannually. The discount on the bond is $83.28. Find the redemption amount.
McGilla Golf has decided to sell a new line of golf clubs. What are the best-case and worst-case NPVs?
Investor buys a stock today assuming to resell it one year from now for $70. Dividend expected to be paid in one year is $10. If required rate of return is 25%, how much the investor is ready to pay for the stock today? That is, what is the PV of fut..
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