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A company's 5-year bonds are yielding 10% per year. Treasury bonds with the same maturity are yielding 6.1% per year, and the real risk-free rate (r*) is 2.1%. The average inflation premium is 3.6%, and the maturity risk premium is estimated to be 0.1(t - 1)%, where t = number of years to maturity. If the liquidity premium is 1.2%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.
A $5000 demand loan was advanced on June 3. Fixed monthly payments of $1000 were required on the first day of each month, beginning July 1. Prepare the full repayment schedule for the loan. Assume that the interest rate remained at 12.5% simple inter..
An appliance for less is a local appliance store. It costs the store $2.4 per unit annually for storage, insurance act. To hold microwave in their inventory. Sales this year are anticipated to be 632 units. Each order costs $21. The company is using ..
Constant Growth Valuation Crisp Cookware's common stock is expected to pay a dividend of $2 a share at the end of this year (D1 = $2.00); its beta is 1.05; the risk-free rate is 2.7%; and the market risk premium is 4%. Assuming the market is in equil..
If a stock's return is normally distributed and has an average return of 11% and a standard deviation of 19.5%, what is the lower bound and the upper bound in returns where we would see 95% of the returns?
Does good corporate governance matter? The Sarbanes-Oxley Act (SOX) was passed in 2002 by the U.S. Congress to address corporate governance reform. SOX has not been without controversy to put it mildly. Identify and discuss several positive and negat..
Keenan Co. is expected to maintain a constant 4.6 percent growth rate in its dividends indefinitely. If the company has a dividend yield of 6.4 percent, what is the required return on the company’s stock?
The Put/Call Parity Theorem
A jewellery store manager wants to offer credit to her customers. Interest charges will be determined using end of month balances and part of monthly payments. A bank will lend the manager at 6 percent compounded monthly. To offset overhead, the mana..
A portfolio is invested 16 percent in Stock G, 31 percent in Stock J, and 53 percent in Stock K. The expected returns on these stocks are 10 percent, 12.5 percent, and 17.9 percent, respectively. What is the portfolio’s expected return?
Suppose the exchange rate between U.S dollars and Japanese yen is $1 US=¥ 79.1 JPY, and the exchange rate between the U.S dollar and the British pound is $1 US=£0.64 GBP, What is the cross rate of Japanese yen to British pound?
Alexander Corp. will pay a dividend of $4.30 next year. The company has stated that it will maintain a constant growth rate of 4.75 percent a year forever. If you want a return of 12 percent, how much will you pay for the stock?
Use the information in this table (TABLE 1) for the following questions: Table 1 Firm X Y Assets $1.2 million $1.7 million Debt $600,000 $1.3 million Sales $3.5 million $3.5 million Earnings $277,000 $377,000. Utilizing the information above, the Pro..
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