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The yield to maturity on Xerox Corporation bonds maturing in 2014 is 8.40 percent. The yield to maturity on a similar maturity U.S. government Treasury bond is 7.55 percent. The yield to maturity on 90-day Treasury bills is 6.11 percent.
a. What is the maturity risk premium between the Treasury bill and the Xerox bond?
b. What is the default risk premium on the Xerox bond?
Calculate Expected Cash Flows, NPV, and Present Value for opening a UPS Store Franchise. Specifically calculate the following: Expected cash flows given forecasted profit. Present value and net present value
A retirement plan guarantees to pay to you or your estate a fixed amount for 20 years. At the time of retirement you will have $73,425 to your credit in the plan. the plan anticipates earning 9% interest. Given the following information, how much wil..
A small manufacturing firm is considering the purchase of a new machine. Two types of machines are available on the market. The lives of Machine A and Machine B are four years and six years respectively, but the firm does not expect to need the servi..
A manufacturing company is purchasing a new machine for $380,000 to expand its production capacity. It will cost an additional $30,000 to do the site preparation. With the new machine installed, the company expects to increase its revenue by $91,000 ..
Signature Sweets, Inc. has 10 percent semi annual bonds outstanding with 20 years to maturity. The latest quote on these bonds is 120.00 percent of the face value. What is the yield to maturity?
Assume that the risk-free rate is 6% and that the market risk premium is 8%. What is the required rate of return on a stock with a beta of 1.3?
A stock has a beta of 1.3 and an expected return of 12.8 percent. A risk-free asset currently earns 4.3 percent. Required: (a) What is the expected return on a portfolio that is equally invested in the two assets?
Berkshire Hathaway Inc. (NYSE: BRK.A) would like to hedge its $5 million exotic insurance portfolio by using S&P 500 futures. Having heard about your excellent grades in the Derivatives class, Berkshire chairman Warren E. Buffett has hired you as a c..
Computing the present value of future dollars is known as:
Consider a trader who takes a long position in a six-month forward contract on the euro. The forward rate is $1.75 = €1.00; the contract size is €62,500. At the maturity of the contract the spot exchange rate is $1.65 = €1.00. Find the trader's profi..
Which two of the methods used to evaluate project, and used to decide whether or not they should be accepted, do you prefer as a financial manager? Explain why you decided on these two and not the others. List the perceived deficiencies of the four n..
Over the last 5 years, the Russell small stock index has consistently out-performed the Russell large stock index. The S&P400 index is composed of the 400 largest stocks in the S&P500. The yield curve almost always slopes upward. An asset that last y..
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