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Suppose the returns on long-term corporate bonds and T-bills are normally distributed. Assume for a certain time period, long-term corporate bonds had an average return of 5.3% and a standard deviation of 8.1%. For the same period, T-bills had an average return of 3.8% and a standard deviation of 2.6%. Use the NORMDIST function in Excel® to answer the following questions: Required: (a) What is the probability that in any given year, the return on long-term corporate bonds will be greater than 10 percent? Less than 0 percent? (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).) Probability of return greater than 10 percent % Probability of return less than 0 percent % (b) What is the probability that in any given year, the return on T-bills will be greater than 10 percent? Less than 0 percent? (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).) Probability of T-bill return greater than 10 percent % Probability of T-bill return less than 0 percent % (c) In one year, the return on long-term corporate bonds was −4 percent. How likely is it that such a low return will recur at some point in the future? T-bills had a return of 10.72 percent in this same year. How likely is it that such a high return on T-bills will recur at some point in the future? (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).) Probability of return on long-term corporate bonds less than –4.00 percent % Probability of T-bill return greater than 10.72 percent
Last year Joan purchased a $1,000 face value corporate bond with an 9% annual coupon rate and a 10-year maturity. At the time of the purchase, it had an expected yield to maturity of 9.28%. If Joan sold the bond today for $972.96, what rate of return..
Stock Values. Huang Company's current unpaid dividend is $1.25. The dividend growth rate is expected to be constant at 15% for 3 years, after which dividends are expected to grow at a rate of 6% forever. If the firm's required return (rs) is 11%, wha..
The current market price of a security is $40, the security's expected return is 13%, the riskless rate of interest is 7%, and the market risk premium is 8%. a. What will be the security's price, if the covariance of its rate of return with the marke..
Assume that a radiologist group practice has the following cost structure: Fixed Cost: $350,000 Variable Cost per Procedure: $12.50 Charge (revenue) per procedure: $85 Expected Volume: 7,000 procedures. What volume is required to provide a pretax pro..
You take out a 30-year $450,000 mortgage loan with an APR of 7.75 percent and monthly payments. In 16 years you decide to sell your house and payoff the mortgage. What is your monthly payment? What is the principal balance on the loan? What is your t..
Joel, a former employee of Network Bank, an online bank, decided to exact some revenge. Though his official access to the bank's records was removed, he was able to hack into the bank's database of customer information, obtaining passwords associated..
If the standard deviation of Euro percentage changes is 10% annualized, what is the appropriate standard deviation to use for assessing the risk on a 1-month investment? Next, assuming an expected percentage appreciation for Euro of 3% per year (0.25..
What are the two principal reasons for holding cash? Can a firm estimate its target cash balance by summing the cash held to satisfy each of the two reasons? What are the four elements of a firm's credit policy? To what extent can firms set their own..
Loaded-Up Fund charges a 12b-1 fee of 1% and maintains an expense ratio of 0.60%. Economy Fund charges a front-end load of 2%, but has no 12b-1 fee and an expense ratio of 0.40%. Assume the rate of return on both funds’ portfolios (before any fees) i..
Medusa Company allocates costs from the payroll department (S1) and the maintenance department (S2) to the molding (P1), finishing (P2), and packaging (P3) departments. Medusa uses the direct method to allocate costs. Round all answers to the nearest..
Cash or cash-equivalents are part of many investment portfolios. Why do investors keep cash in their portfolios? Why are you keeping cash in the portfolio you designed for the term project?
The 7 percent bonds issued by Modern Kitchens pay semi annually, mature in eight years, and have a $1,000 face value. Currently, the bonds sell for $1,032. What is the yield to maturity?
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