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The current rate on a five-year Treasury is 6.44%. The current rate on a six-year Treasury is 7.01%. The liquidity premium in year 5 (L5) is 0.15% and the liquidity premium in year 6 (L6) is 0.25%. If the liquidity premium theory holds, what does the market expect the one-year interest rate to be in 5 years?
You have a stock market portfolio with a beta of 1.15 that is currently worth $300 million. You wish to hedge against a decline using index options. Suppose you decide to use SPX calls. Calculate the number of contracts needed if the call option you ..
Change in net working capital should always be positive. Free cash flow can never be negative. A negative cash flow to creditors indicates you must have paid off debt during the period. A negative cash flow to shareholders indicates you must have iss..
Keyser Mining is considering a project that will require the purchase of $875,000 in new equipment. The equipment will be depreciated straight-line to a zero book value over the 7-year life of the project. All of the net working capital will be recou..
The Raven Co. has just gone public. Under a firm commitment agreement, Raven received $17.30 for each of the 15 million shares sold. The initial offering price was $21.00 per share, and the stock rose to $23.40 per share in the first few minutes of t..
CFS is considering applying for a stimulus funding grant that would allow it to install solar panels on each of its four fire houses. The roofs on each of the firehouses are big enough to accommodate 30,000 square feet of panels. Panels cost $8 per s..
Net working capital investments of $50,000, $75,000, and $85,000 are expected at the end of years 1, 2, and 3 respectively. Calculate the expected net cash flows for year 3.
If your calculated intrinsic value differed substantially from the current market price, and if your views are consistent with those of most investors (the marginal investor), what would happen in the marketplace? What would happen if your views were..
A local government is about to run a lottery but does not want to be involved in the payoff if a winner picks an annuity payoff. The government contracts with a trust to pay the lump-sum payout to the trust and have the trust (probably a local ban..
May Inc. just reported a net income of $8000000 and its current stock price is $34.00 per share. May Inc. is forecasting an increase of 25% of its net income next year, but it also expects it will have to issue 1,500,000 new shares of stock. If May I..
5 years ago, Barton Industries issued 25-year noncallable, semiannual bonds with a $1,200 face value and a 8% coupon, semiannual payment ($48 payment every 6 months). The bonds currently sell for $845.87. If the firm's marginal tax rate is 40%, what ..
If you take out a $9,000 car loan that calls for 48 monthly payments at an APR of 10%. What is your monthly payment? What is the effective annual interest rate on the loan?
Birds of a Feather has 10-year bonds outstanding that carry an annual coupon of 8 percent. The bonds mature in 7 years and are currently priced at 110 percent of face value. What is the firm's pretax cost of debt? 6.20 percent 6.60 percent 7.34 perce..
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