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Joe has a son and a wife. His wife is not the mother of his son. He wants to write his will so that they will be treated equitably. The son is currently 10 years old. In his will, Joe provides that $100,000 will be used to invest at the then-current interest rates. The son will receive the annual income from the investment until he is 21. At that time, the son will receive no further income from the investment. Joe wants the rest go to his wife, but he doesn't want her to get it for another 10 years after the son turns 21. Joe has his reasons. After making his will, Joe lives another 2 years and then dies. The interest rate on suitable investments at that time is 8%. How much money will Joe's wife receive when she gets her share?
South Pen Trucking is financing a new truck with a loan of $17,500 to be repaid in five annual end of year installments of $4,499.12 What annual interest rate is the company paying?
One-year Treasury securities yield 3.5%. The market anticipates that 1 year from now, 1-year Treasury securities will yield 6.45%. If the pure expectations theory is correct, what is the yield today for 2-year Treasury securities? Calculate the yield..
A producer of felt-tip pens has received a forecast of demand of 34,000 pens for the coming month from its marketing department. Fixed costs of $30,000 per month are allocated to the felt-tip operation, and variable costs are 36 cents per pen. Find t..
Suppose that the above bank also owns a $ 1 million par value Treasury bond, purchased at par, with two years to maturity, paying $ 29,000 in semiannual interest, with a market value of $ 960,000. Determine the incremental cash flow effects if the ba..
Maximizing shareholder returns usually implies that the firm must also satisfy customers, employees, suppliers, creditors and other stakeholders. First, rank stakeholders as to expected risk and return and then rank stakeholders as to their importanc..
Mr. Darcy is a single man of good fortune, so good, in fact, that it allows him to sustain a lavish lifestyle simply on the interest he earns on his savings without ever having to work. Mr. Darcy has “ten thousand a year” as any prospective young bri..
Consider an investor woh, on January 1, 2017, purchases a TIPS bond with an original principal of $100,000, an 4.50 percent annual (or 2.25 percent semiannual) coupon rate, and 5 years to maturity. Suppose that the semiannual inflation rate for the s..
The value of the dividend that investors expect corporation B to pay one year from today is $10. Given that corporations A and B have exactly the same risk and both have a current stock price of $100. We can assume that the before-dividend stock pric..
Fijisawa, Inc., is considering a major expansion of its product line and has estimated the following free cash flows associated with such an expansion. The initial outlay associated with the expansion would be $1,960,000, and the project would genera..
Cesar Digital Systems has EBIT of $500,000, a growth rate of 5%, and faces a tax rate of 40%. In order to support growth, Cesar must reinvest 50 percent of its EBIT in net operating assets. What is the value of the firm’s tax shield?
Michael Industries has agreed to be acquired by Scott Enterprises for $20,855 worth of Scott Enterprises stock. Scott Enterprises currently has 7,326 shares of stock outstanding at a price of $25.11 a share. Michael Industries has 1,733 shares outsta..
An interest rate is 13.34% per annum expressed with continuous compounding. What is the equivalent rate with semi annual compounding? (Margin of error: +/- 0.01%)
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