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You own a bond with an annual coupon rate of 6% maturing in two years and priced at 88%. Suppose the probability is 11% that at maturity the bond will default and you will receive only 41% of the promised payment. Assume a face value of $1,000.
a. What is the bond’s promised yield to maturity?
A 35-year maturity financial security is expected to have a cash flow of $230 one year form today. The cash flow is expected to grow at a constant rate of 12% per year for its life. The required rate of return on asset is 14%. What is the maximum pri..
John Smith's broker has shown him two bonds. Each has a maturity of 4 years, a par value of $1,000, and a yield to maturity of 13%. Bond A has a coupon interest rate of 7% paid annually. Bond B has a coupon interest rate of 15% paid annually. John ha..
How does net working capital affect the NPV of a 5-year project if working capital is expected to increase by $30,000 and the firm has a 16% cost of capital?
Nichols Corporation's value of operations is equal to $400 million after a recapitalization (the firm had no debt before the recap). It raised $300 million in new debt and used this to buy back stock. Nichols had no short-term investments before or a..
Assuming semiannual compounding, what will be the price of these bonds if the appropriate discount rate is 11.16 percent?
Determine the current value of the bond if present market conditions justify a 14 percent required rate of return.
Consider a mining project in which there are costs to open the mine and to seal the mine at the end of the project. Consider the following cash flows for the project: --$3,787,879 initially, $8,712,121 one year from today, and --$5,000,000 two years ..
A bank quotes you a loan interest rate of 14% on your credit card. If you charge $15,000 at the beginning of the year, how much will you have to repay at the end of the year?
Assess the relevant cash flows used in forming a capital budgeting decision model. For this assignment, focus upon a replacement problem. Assume straight-line depreciation on both machines.
Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $13 million, of which 85% has been depreciated. The used equipment can be sold today for $4.55 million, and its tax rate is 40%. What is the equipment..
Assuming a capital gains tax rate of 15%, what is the after-tax value of the alternative stock investment?- Should Tilly invest her money in the retirement account or in the alternative stock investments?
At what rate of return with annual compounding, would you be indifferent between Option A, a contract that pays $7,000 today, and Option B, a contract that pays $8,000 in 4 equal payments of $2,000 (with one payment today and one payment at the end o..
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