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The real risk-free rate is 2.41%. Inflation is expected to be 2.97% this year and 2.4% next year. The maturity risk premium is estimated to be equal to 0.09%(t-1), where t equals the maturity of a bond in years. All treasuries are assumed to have no liquidity or default risk. Three-year treasuries yield 0.46% more than two-year treasury bonds. What is the expected one-year inflation rate for year 3 implied by this data? State your answer as a percent to two decimal places.
Calculate the price of a bond with 20 years remaining until it is due. The coupon rate is 7%, par value is $1000. The required return on debt is 6% (equivalent risk). What is the coupon yield over the period? What was the total return from holding fo..
Laverne Industries stock has a beta of 1.44. The company just paid a dividend of $.94, and the dividends are expected to grow at 5.4 percent. The expected return of the market is 11.9 percent, and Treasury bills are yielding 5.4 percent. The most rec..
Compute the future value of $5,000 deposited annually for 5 years, assuming a 10% annual interest rate compounded once a year. You may want to use the Excel function for computing the future value of an annuity or an FV table of factors. Explain the ..
Night Shades Inc. (NSI) manufactures biotech sunglasses. The variable materials cost is $15.80 per unit, and the variable labor cost is $6.50 per unit. a. What is the variable cost per unit? what is the cash break-even point? If depreciation is $500,..
The spot price of a market index is $1,085. A 9-month forward contract on this index is priced at $1,170. What is the profit or loss to a short position if the spot price of the market index is $1,095 on the expiration date?
SoHo Corporation, a boutique clothing company, has asked for your advice on whether to invest $40 million in a new line of beachwear. The investment will yield earnings before interest and taxes of $10 million a year, and any depreciation on the proj..
Exactly what is the relationship between segmentation, target marketing, and positioning? What damage will be done to a company's target market and positioning efforts if markets are incorrectly segmented?
Colorado Company has provided you the following information. The enacted tax rate remains at 40% after year 2017. Colorado Company has determined that a valuation allowance is not necessary. Prepare the journal entry on December 31, 2017 to record th..
Compute the ratios using the methods described in this class (which may not always give you the same number as shown in Key Ratios). Note that sales = Total Revenue, and Shares outstanding is reported at the end of the Balance Sheet as “Ordinary Shar..
What's the difference between Standard Deviation and Beta? When talking about cost of capital, it is said that required return is the same than cost of capital. How's that (one is return and the other one is cost)? Why are taxes are applied to cost o..
Project S and L both have an initial cost of $10,000 followed by a series of positive cash inflows. Project S's undiscounted net cash flows total $20,000, while L's total undiscounted flows are $30,000. At a WACC of 10% the two projects have identica..
Scanlin, Inc., is considering a project that will result an initial aftertax cash savings of $2.1 million at the end of the first year, and these savings will grow at a rate of 2% per year indefinitely. The firm has a target debt-equity ratio of .80,..
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