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You observe the following U.S. Treasury yields: 4.2% on a 1 year to maturity bond, 4.4% on a 2-year bond, 4.9% on a 3-year bond and 5.3% on a 4-year bond. Using simple averaging (arithmetic not geometric), what is the implied 1-year rate that will occur in 1 year? What is the implied 1-year rate that will occur in 2 years? What is the implied 1-year rate that will occur in 3 years? Assume that expectations is the only factor determining the YTMs.
XYZ corp. currently has 50 million shares of common stock outstanding. Their current market price is $80 per share and have a beta of 1.15. XYZ has $1 billion of bonds outstanding, each with the market value of $1100. XYZ also has 100 million shares ..
In commercial leases, rents do not necessarily have to be kept constant over the life of the lease term. One option is for there to be pre-specified increases in the contract rental rate over time, sometimes referred to as “step-ups” or “escalations...
What is the minimum yield on a 1-year risk-free security in Britain that would induce a U.S. investor to invest in the British security.
Apocalyptica Corporation is expected to pay the following dividends over the next four years: $6.20, $17.20, $22.20, and $4.00. Afterwards, the company pledges to maintain a constant 5.50 percent growth rate in dividends, forever. Required: If the re..
The default risk and liquidity premiums for this company's bonds total 0.9 percent and are believed to be the same for all bonds issued by this company. If the average inflation rate is expected to be 5 percent for years 5, 6, and 7, what is the y..
Monroe, Inc., is evaluating a project. The company uses a 13.8 percent discount rate for this project. Cost and cash flows are shown in the table. What is the NPV of the project?
The prices of long-term bonds are less volatile than those of short-term bonds because long-term bonds respond less strongly to change in interest rates.
Project 1 has a project beta of 2.0 and you have estimated that the project’s NPV using a cost of capital of 20% equals zero.
You are considering to borrow 1.25 million dollars to finance a capacity expansion project. The loan is payable in three equal annual installments in years 1, 2, and 3 after you receive the loan. The effective interest rate is 22%. If your tax rate i..
The current spot rate is C$1.379 and the one-year forward rate is C$1.319. The nominal risk-free rate in Canada is 4 percent while it is 8 percent in the U.S. Using covered interest arbitrage you can earn an extra _____ profit over that which you wou..
Assuming that interest payments are reinvested during the life of the CD, how much will the CD be worth at maturity if the interest rate is 5 percent?
Describe the two general types of subsequent events. What is the auditors' responsibility with respect to detecting subsequent events?
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