What is the estimated real rate of interest

Assignment Help Financial Management
Reference no: EM131068883

1. Nico Nelson, a management trainee at a large New York-based bank is trying to estimate the real rate of return expected by investors. He notes that the 3-month T-bill currently yields 3 percent and has decided to use the consumer price index as a proxy for expected inflation. What is the estimated real rate of interest if the CPI is currently 2 percent?

2. What is the approximate yield to maturity for a $1,000 par value bond selling for $1,120 that matures in 6 years and pays 12 percent interest annually?   

Reference no: EM131068883

Questions Cloud

Assess the impact the problem poses to society : Analyze the economic theory used to complete the policy solution and determine the impact on the appropriate stakeholders.
Expected showed up and purchased the flu shot : Assume that the clinic used the price that they need to exactly break even at 10,000 shots. Fewer people than expected showed up and purchased the flu shot. The clinic would: A. earn a profit. B. have a loss. C. break-even. D. have a reduced unit con..
Gas-powered and an electric-powered forklift truck : Davis Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory. Since both forklifts perform the same function, the firm will choose only one. Calculate the NPV for each type of truck.
Determining the rocket to hit the ground : A toy rocket is launched from a 3.5 m high platform in such a way that its height, h (in meters), after t seconds is given by the equation h=-4.9t + 23.8t +3.5. How long will it take for the rocket to hit the ground?
What is the estimated real rate of interest : Nico Nelson, a management trainee at a large New York-based bank is trying to estimate the real rate of return expected by investors. He notes that the 3-month T-bill currently yields 3 percent and has decided to use the consumer price index as a pro..
Calculate the value of the treasury note : Assume that a $1,000,000 par value, semiannual coupon U.S. Treasury note with three years to maturity (TM) has a coupon rate of 5%. The yield of the bond is 7.70%. Using this information and ignoring the other costs involved, calculate the value of t..
Ordinary income and capital gains-tax effect of transaction : A corporation is selling an existing asset for $21,000. The asset, when purchased, cost $10,000, was being depreciated under MACRS using a five-year recovery period, and has been depreciated for four full years. If the assumed tax rate is 40 percent ..
Explain how you will ensure academic integrity : You will conclude your toolbox document with a short reflection paper (of 2-3 pages) in which you note any remaining questions and concerns that you may have about becoming an effective scholarly writer, how you will use writing resources availabl..

Reviews

Write a Review

Financial Management Questions & Answers

  Considering the buyout of an existing publicly traded

For this discussion, assume that you are an investor and considering the buyout of an existing publicly traded company. There are several areas you plan to focus on during your due diligence process in order to determine the organization's potential ..

  What principal remains to be paid after the third payment

A $10,000 loan is to be repaid at the rate of $200 per month, with an annual effective interest rate of 19.56% charged against the unpaid balance. What principal remains to be paid after the third payment?

  Portfolio equally invested in risk-free asset and two stocks

You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.16, and the total portfolio is exactly as risky as the market, what must the beta be for the other stock in your portfolio?

  What should price per share be for firms common stock

Suppose a firm is anticipated to have a Net Income per Share of $25 next year and is expected to pay only 20% of (total) Net Income in Dividends. Also, the firm faces an unusually high cost of common stock of 22% and has an unusually low dividend gro..

  Considering leasing new robotic milling control system

Your firm is considering leasing a new robotic milling control system. The lease lasts for 4 years. The lease calls for 5 payments of $280,000 per year with the first payment occurring at lease inception. The system would cost $900,000 to buy and wou..

  Modigliani miller model with corporate taxes

The main difference between MM II (Modigliani Miller Model with Corporate Taxes) and Miller Model with Corporate and Personal Taxes is:

  Calculate the net income for stumble-on-inn last year

DuPont Analysis Last year, Stumble-on-Inn Inc. reported an ROE of 18 percent. The firm’s debt ratio was 55 percent, sales were $15 million, and the capital intensity was 1.25 times. Calculate the net income for Stumble-on-Inn last year.

  What is the effective annual rate

You decide to borrow against the title of your car to get some quick cash. The quoted interest rate is 24.7%, but you notice that it is compounded daily. What is the effective annual rate?

  Analysts expect this dividend to grow

Lemma Systems will pay an annual dividend of $0.50 one year from now. Analysts expect this dividend to grow at 7% per year thereafter until the fifth year. After then, growth will level off at 3% per year. According to the dividend-discount model, wh..

  T-bills are risk-free

Given the utility function U = E(r) – 0.5Aσ2 and the fact that T-bill offer a risk-free rate of 4%, what is the minimum value for the risk-aversion coefficient A where an investor prefers the T-bills to an investment returning 10% with a standard dev..

  What is the percentage price change of these bonds

Bond J has a coupon rate of 7 percent and Bond K has a coupon rate of 13 percent. Both bonds have 15 years to maturity, make semiannual payments, and have a YTM of 10 percent. If interest rates suddenly rise by 2 percent, what is the percentage price..

  What percent of sales is spent on capital expenditures

Check out what percent of sales is spent on capital expenditures, and what the expenditures are for (investment in new areas? maintaining existing projects?)

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd