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It is January 1, 2008. Inflation currently is about 2 percent; throughout 2007 the Fed took action to maintain inflation at this level. Now the economy is starting to grow too quickly and reports indicate that inflation is expected to increase during the next five years. Assume that at the beginning of 2008, the rate of inflation expected for 2008 is 4 percent; for 2009 it is expected to be 5 percent; for 2010 it is expected to be 7 percent; and for 2011and every year thereafter, it is expected to settle at 4 percent
A. what is the average expected inflation rate over the 5 year period 2008-2012 (use the arithmetic average)B. what average nominal interest rate would over the 5 year period be expected to produce a 2 percent real risk free rate of return on 5 year treasury securitiesC. Assuming a real risk-free rate of 2 percent and a maturity risk premium that starts at 0.1 percent and increases by 0.1 percent each year, estimate the interest rate in January 2008 on bonds that mature in one, two, five, 10, and 20 years. Also, draw a yield curve based on these data.D. Describe the general economic conditions that could be expected to produce an upward-sloping yield curve.E. if the consensus among investors in early 2008 had been that the expected rate of inflation for every future year was 5 percent, what do you think the yield curve would have looked like? consider all factors that are likely to affect the curve. does your answer here make you question the yield curve you drew in part c
Prepare a financial forecast for Joan Roberts.
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straight line depreciation to zero over the 3 year life; zero salvage value; price =$34.99; variable costs=$23.16; fixed costs=$245,000; quantity sold=94,500 units; tax rate=35%. How sensitive is OCF to an increase of one unit in the quantity sold..
Pizza A had earnings after taxes of $600,000 in the year 2008, and 300,000 shares outstanding. In year 2009, earnings after taxes increased to $750,000, and 25,000 new shares were issued for a total of 325,000 shares. What is the EPS figure for 20..
Suppose that you buy a new car that costs $30,000 and you are able to pay $3,000 of the cost in cash and borrow the remainder from a bank that offers a conventional amortizing loan with monthly payments.
If during an election there were 6372 listed voters & 3560 listed voters voted, what percentage of the listed voters actually cast a vote.
Evaluate the value today of one of these bonds to an investor who requires a 14% rate of return on these securities.
Calculate the required pre-tax earnings to cover debt and preferred stock obligations, before and after the recapitalization?
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