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Default Risk Premium A company's 5-year bonds are yielding 9.85% per year. Treasury bonds with the same maturity are yielding 5.7% per year, and the real risk-free rate (r*) is 2.35%. The average inflation premium is 2.95%, and the maturity risk premium is estimated to be 0.1(t - 1)%, where t = number of years to maturity. If the liquidity premium is 0.65%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.
The Earnings per Share (EPS) of company LMN for 2012 was $ 6. The Book Value per share of the company was $ 72. What was the Return on Equity (RoE) for the company?
An annuity of $1,000 per year has 10 annual cash flows, with the first one being today. At an interest rate of 15% annually, what is the annuity’s future value?
We have seen that over long periods stock investments have tended to substantially outperform bond investments. However, it is not at all uncommon to observe investors with long horizons holding their investments entirely in bonds. Are such investors..
Cirrus Radio is a multi-format, group radio station owner with operations in the top 100 US markets. The company is traded on the NASDAQ stock exchange. Donna Pringle has estimated the normalized FCFE for Cirrus Radio to be $5.25 per share for the ye..
Suppose we are told that an investor invests optimally and that he puts 20% in the Market portfolio and 80% in the Risk Free Portfolio. What must be his coefficient of risk aversion?
Summerdahl Resorts' common stock is currently trading at $22.00 per share. The stock is expected to pay a dividend of $2.50 a share at the end of the year (D1 = $2.50), and the dividend is expected to grow at a constant rate of 3% a year. What is the..
Rate of Return If State Occurs State of Probability of Economy State of Economy Stock A Stock B Recession .22 .10 − .17 Normal .52 .13 .12 Boom .26 .18 .29 Calculate the expected return for each stock. (Do not round intermediate calculations. Calcula..
Consider a three-year project with the following information: initial fixed asset investment = $860,000; straight-line depreciation to zero over the five-year life; zero salvage value; price = $33.65; variable costs = $22.35; fixed costs = $208,000; ..
The Tsetsekos Company was planning to finance an expansion. The principal executives of the company all agreed that an industrial company such as theirs should finance growth by means of common stock rather than by debt. Should the preferred stock in..
Suppose you put $100 into a savings account today, the account pays 8% compounded semiannually, and you withdraw $50 one year after your initial deposit. What would your ending balance be 20 years after the initial $100 deposit was made, assuming tha..
Bond valuation Callaghan Motors' bonds have 5 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest rate is 10.5%, and the yield to maturity is 6%. What is the bond's current market price?
Southport Company is considering the purchase of a piece of equipment that costs $100,000. The equipment would be depreciated on a straight-line basis to its expected salvage value of $10,000 over its 16-year useful life. Assuming a tax rate of 40%, ..
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