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1. A one-year Treasury security offers a 4 percent yield to maturity (YTM). A two-year Treasury security offers a 4.25 percent YTM. According to the expectations hypothesis, what is the expected interest rate on a one-year security next year?
2. A one-year Treasury bill offers a 6 percent yield to maturity. The market's consensus forecast is that one-year T-bills will offer 6.25 percent next year. What is the current yield on a 2-year T-bill if the expectations hypothesis holds?
Just as the interest rate sensitivity of a single cash flow increases with its maturity, the interest rate sensitivity of a stream of cash flows increases with its duration. A firm's market capitalization is determined by the difference in the market..
If the average return on their investment was 8%, how much was in their IRA at age 60? What was their total investment?
Explain the relationship observed between ratings and yield to maturity - Explain why the coupon rate and the yield to maturity determine why the bonds would trade at a discount, premium, or par.
Assume that your firm's marginal tax rate is 35% and that your firm has the following capital structure: Bonds coupon rate = 6% yield-to-maturity = 6.5% Market value of bonds = $25 million Book value of bonds = $30 million Common stock Book value of ..
Last year Joan purchased a $1,000 face value corporate bond with an 11% annual coupon rate and a 10 year maturity. At the time of purchase, it had an expected yield to maturity of 9.79%. If Joan sold the bond today for $1060.49 what rate of return wo..
The beta of a stock is 0.50 and the standard deviation of its expected returns is 10%. The standard deviations of the market return is 15%. Find the correlation coefficient between the expected returns on the stock and the market.
Compute the value of a share of common stock of Lexi's Cookie Company whose most recent dividend was $2.50 and is expected to grow at 3 percent per year for the next 5 years, after which the dividend growth rate will increase to 6 percent per year in..
(You have just purchased an outstanding 15-year bond with a par value of $1,000 for $1,145.68. It's annual coupon payment is $75.) For the same bond from the previous example assume that this bond is callable in 7 years a a price of $1,075. What is t..
You have been asked to set a rate for a Surgical-center. Costs are budgeted to be $4,000,000. Per year for projected surgical procedures of 7,000. The Surgical-center expects that 50 percent of its procedures will be Medicare and that Medicare will p..
The before-tax cost of debt for a firm which has a 40 percent marginal tax rate is 12 percent. The after-tax cost of debt is
HD Inc. has been in the auto industry for a long time. The WACC of the firm is 15%. The D/E ratio is .5. The YTM of the debt is 3%. Tax rate is 35%. Recently, the firm is planning to enter the local personal lending market in City N. There are three ..
Find the periodic payment R required to amortize a loan of P dollars over t years with interest charged at the rate of r%/year compounded m times a year.
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