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1. An investor buys 500 shares of stock at $50 and the stock pays a 4% annual dividend. a. If the investor holds the stock for 10 years and the neither the price nor the dividend change and the investor chooses to reinvest the dividends into stock what will be the value of the stock holdings and how many shares will the investor have? b. If the investor holds the stock for 10 year and the stock price increases by 5% per year and the dividend remains the same, what will be the value of the holdings if the investor reinvests the dividends in additional stock holdings and how many shares of stock will the investor have? c. If the investor holds the stock for 10 year and the stock price increases by 5% per year and the dividend remains the same, what will be the value of the holdings if the investor does not reinvest the dividends how many shares of stock will the investor have and how much will they be worth? d. What is the difference between a, b, c and how significant are the additions from reinvesting?
2. A company has two bonds outstanding. The first matures after five years and it has a coupon rate of 3%. The second matures after ten years and it has a coupon rate of 5%. Interest rates are currently 7%. What is the present value of each $1,000 bond? Why are these values different?
Under what conditions are remittances significant contributors to the economy and overall balance of payments?
On July 4, 2012, you convert $500,000 U.S. dollars to Japanese yen in the spot foreign exchange market and purchase a 1-month forward contract to convert yen into dollars. How much will you receive in U.S. dollars at the end of the month? (use foreig..
You invested $75,000 in a mutual fund at the beginning of the year when the NAV was $47.24. At the end of the year the fund paid $.37 in short-term distributions and $.54 in long-term distributions. If the NAV of the fund at the end of the year was $..
Ben owns 1,000 shares of stock that is selling for $40 per share. He wants to defer selling the stock until next January for tax reasons. He wants to find a strategy that guarantees he will have at least $40,000 in value next January. Which strategy ..
Martha Stewart earned abnormal returns on insider knowledge. Which form(s) of market efficiency does this violate?
Suppose that it is August 13, 2013 and that Pinnacle Partners plans to buy a Treasury bond that matures in May 2042. The bond pays coupons semi-annually on May 15 and November 15 of each year. The Ask quote for this bond is 112:18 and it pays an annu..
Jill's Wigs Inc. had the following balance sheet last year: Cash $800 Accounts payable $350 Accounts receivable $450 Accrued wages $150 Inventory $950 Notes payable $2,000 Net fixed assets $34,000 Mortgage $26,500 Common stock $3,200 Retained earning..
Thornley Machines is considering a 3-year project with an initial cost of $690,000. The project will not directly produce any sales but will reduce operating costs by $405,000 a year. The project will require $17,000 in extra inventory for spare part..
Capital budgeting can be affected by exchange rate risk, transfer pricing, and strategic risk. Explain how these factors may and can impact capital budgeting.
Zhdanov Inc. forecasts that its free cash flow in the coming year, i.e., at t = 1, will be -$10 million, but its FCF at t = 2 will be $20 million. After Year 2, FCF is expected to grow at a constant rate of 4% forever. If the weighted average cost of..
Project A has an initial cost of $80,000 and provides cash inflows of $34,000 a year for three years. Project B has an initial cost of $80,000 and produces a cash inflow of $114,000 in year three. The projects are martially exclusive. Which project(s..
Most corporations pay quarterly dividends on their common stock rather than annual dividends. Barring any unusual circumstances during the year, the board raises, lowers, or maintains the current dividend once a year and then pays this dividend out i..
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