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A company's 5-year bonds are yielding 9.15% per year. Treasury bonds with the same maturity are yielding 6.55% per year, and the real risk-free rate (r*) is 2.45%. The average inflation premium is 3.7%, 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 0.65%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.
The following two investment options are viewed under an annual effective interest rate of i. Investment A is a a 10-year zero coupon bond which redeems at par-value 250. Investment B is a perpetuity-immediate paying an annual payment starting with 4..
The current stock price of Largent, Inc., is $44.12. If the required rate of return is 18 percent, what is the dividend paid by this firm if the dividend is not expected to grow in the future?
Romboski, LLC, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 −$ 60,000 −$ 60,000 1 36,000 23,000 2 30,000 27,000 3 21,000 32,000 4 14,000 25,000. What is the IRR for each of these projects?
You are planning to invest $2,500 today for three years at a nominal interest rate of 9 percent with annual compounding. Now assume that inflation is expected to be 3 percent per year over the same three-year period. What would be the investment's fu..
Hill Propane Distributors sells propane gas throughout the eastern half of Texas. Because of population growth and a construction boom in recent years, the company has prospered and expects to continue to do well in the near term. Investors expect an..
The following items are components of a traditional balance sheet. How much are the total assets of the firm
This problem is useful for testing the ability of financial calculators and computer software. Consider the above cash flows. The IRRs, from smallest to largest, are____ percent, ___percent, ___percent, and ___percent.
Assume that you are the owner of an import business that specializes in the sale of floor tiles from around the world. Your business has grown dramatically over the 2 years since its founding, and you are looking for a way to convert your accounts re..
In this essay, we are going to discuss the issues of financial management in a non-profit organisation.
A homeowner takes a 20-year fixed-rate mortgage for $100,000 at 7.2 percent. After nine years, the homeowner sells the house and pays off the remaining principal. How much is the principal payment?
Cortez Art Gallery is adding to its existing buildings at a cost of $2 million. The gallery expects to bring in additional cash flows of $520,000, $700,000, and $1,000,000 over the next three years. Given a required rate of return of 10 percent, what..
Your client is 35 years old; and she wants to begin saving for retirement, with the first payment to come one year from now. She can save $9,000 per year; and you advise her to invest it in the stock market, which you expect to provide an average ret..
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