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Maturity Risk Premium
An investor in Treasury securities expects inflation to be 1.7% in Year 1, 3% in Year 2, and 3.85% each year thereafter. Assume that the real risk-free rate is 1.55%, and that this rate will remain constant. Three-year Treasury securities yield 6.80%, while 5-year Treasury securities yield 8.45%. What is the difference in the maturity risk premiums (MRPs) on the two securities; that is, what is MRP5 - MRP3? Do not round intermediate calculations. Round your answer to two decimal places.
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Last year Rattner Robotics had $5 million of operating income. Its depreciation expense was $1 million, its interest expense was $1 million, and its corporate tax rate was 40%. What was the company's net income? What was its net operating working cap..
A stock is expected to pay a dividend of $1 per share in two months and again in five months. The stock price is $50 and the risk-free rate is 1% for all times. An investor has taken a short position in a six-month forward contract on the stock. What..
Compute the present value of $1,500 paid in three years using the following discount rates: 5 percent in the first year, 6 percent in the second year, and 7 percent in the third year.
The Wei Corporation expects next year's net income to be $20 million. The firm's debt ratio is currently 50%. Wei has $15 million of profitable investment opportunities, and it wishes to maintain its existing debt ratio. According to the residual dis..
You are planning to save for retirement over the next 30 years. To save for retirement, you will invest $1,300 per month in a stock account in real dollars and $555 per month in a bond account in real dollars. How much can you withdraw each month fro..
After hearing the advice that it is usually best to buy life insurance from a person who has been in the business at least five years, a life insurance company general agent became upset and said rather vehemently, “How do you think we could recruit ..
A new product has the following cost structure over one month of operation. Determine the break even point. Q= f / ( P- v).
Assume that the existing bond that provides annual coupon payments with a par value of $2000, what would be the present value of the bond?
You own a stock portfolio invested 10 percent in Stock Q, 35 percent in Stock R, 20 percent in Stock S, and 35 percent in Stock T. The betas for these four stocks are .75, 1.90, 1.38, and 1.16, respectively. What is the portfolio beta?
You inherited Auntie Ethel’s antique porcelain vase from the Ming Dynasty. Purchase an all-peril HO-3 homeowners insurance policy.
If this plan were carried out, what would be PP's new value of operations? what is the stock price per share immediately after the repurchase?
You have $100,000 to invest in either Stock D, Stock F, or a risk-free asset. You must invest all of your money.
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