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1. What is a potential concern regarding the royalty income from a retiring musician that may need to be addressed?
2. What investment class (equity, fixed income, real estate etc.) do the royalty payments mimic? Why?
3. Mr. W informs you that at retirement he plans to move from California, a state with high income taxes to Texas, a state with no income tax. How does this impact his objectives and constraints?
4. Mr. W. informs you that he has a 30 year old special needs child that will need special care after his death. He has contingency plans for caregivers and figures this will require an expense of around $100,000 per year. How does this impact the time horizon of the portfolio and its risk/return requirements? What about sensitivity to inflation?
What is the Macaulay duration of a 7% coupon bond with five years to maturity and a current price of $1,025.30? What is the modified duration? (Assume semi-annual coupon payments unless it is explicitly stated to use annual coupon payments)
You want to earn the equivalent of $3500 per month over the expected 25 years of your retirement. You plan to retire in 40 years and can earn 12% on your savings till retirement and 8% on the retirement fund once you retire. How much will you have to..
Suppose we have the following Treasury bill returns and inflation rates over an eight year period: Year Treasury Bills Inflation 1 9.87% 11.87% 2 10.76 15.36 3 8.48 9.69 4 7.78 7.43 5 8.30 9.69 6 10.63 12.15 7 13.49 16.34 8 15.31 16.22. Calculate the..
Given the following cash flows for a capital project, calculate the IRR using a financial calculator year
The Company expects their dividends and earnings to grow at a constant rate of 5% a year into the foreseeable future. Currently the market is requiring a 12% rate of return on their stock. The most recent dividend paid was $2.85/share. What is the cu..
Aberwald Corporation expects to order 126,000 memory chips for inventory during the coming year, and it will use this inventory at a constant rate. Fixed ordering costs are $300 per order; the purchase price per chip is $20; and the firm's inventory ..
Developing a Product-Positioning Map for McDonald's Purpose Organizations continually monitor how their products and services are positioned relative to competitors. This information is especially useful for marketing managers but is also used by oth..
Halliford Corporation expects to have earnings this coming year of $3.13 per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two years, the firm will retain 45% of its earnings. It will then retain 20% ..
Both Bond Bill and Bond Ted have 11 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 3 years to maturity, whereas Bond Ted has 20 years to maturity. If interest rates suddenly rise by 2 percent, what is the percen..
Suppose you hold a bond and interest rates suddenly fall. Duration says that bond prices will raise a given amount. If Convexity is included in this estimate, will bond prices go above or below what Duration predicts? Explain your answer.
The cost of holding a bearing in stock for one year is Rs.2 and the set-up cost of a production run is Rs.1,800. How frequently should production run be made?
A7X Corp. just paid a dividend of $2.50 per share. The dividends are expected to grow at 17 percent for the next eight years and then level off to a growth rate of 7 percent indefinitely. If the required return is 13 percent, what is the price of the..
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