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Suppose it is 2020 and 1-year interest rate is 5 percent. You observe that the interest rate on 2-year bond is 4.5%. Assume there is no liquidity premium and the interest rates are determined according to expectation hypothesis of the yield curve a. Based on the interest rates above, what is the expected 1-year interest rate, starting one year from today? b. If the interest rate on 3-year bond is 4%., what is the expected 1-year interest rate starting 2 years from today? c. If the interest rate on 4-year bond is 4%., what is the expected 1-year interest rate starting 3 years from today? d. Draw the yield curve for the next four years. e. Is the yield curve for the next four years upward sloping or downward sloping? Explain why f. What might the yield curve today indicate about future interest rates? g What might the yield curve today indicate about future economic activity? Explain why? h. What might the yield curve indicate about the markets’ prediction for inflation rate in the next four years? i. What might the yield curve indicate about monetary policy today? j. What might the yield curve indicate about a long-term bonds price? Expected return on long-term bonds? Explain k. Given the slope of the yield curve today, would you rather be lender or borrower in the next five years? Why?
Include profitability, liquidity, leverage, and activity ratios for which you have data available (data may not be available for all ratios - just use what's available in the case). Present your calculations in table format.
Semiannual coupon bonds with the same risk (Aaa) and maturity (20 years) as your company's bonds have a nominal (not EAR) yield to maturity of 9%. Your company's treasurer is thinking of issuing, at par, some $1,000 par value, 20-year, quarterly paym..
You are considering two savings options. Both options offer a 4% rate of return. The first option is to save $1,200, $1,500, and $2,000 a year over the next three years, respectively. The other option is to save one lump sum amount today. If you want..
Fooling Company has a 13.4 percent callable bond outstanding on the market with 25 years to maturity, call protection for the next 10 years, and a call premium of $50. What is the yield to call (YTC) for this bond if the current price is 105 percent ..
Barton Industries can issue perpetual preferred stock at a price of $49 per share. The stock would pay a constant annual dividend of $3.50 per share. If the firm's marginal tax rate is 40%, what is the company's cost of preferred stock? If the firm's..
Deployment Specialists pays a current (annual) dividend of $1 and is expected to grow at 24% for two years and then at 5% thereafter. If the required return for Deployment Specialists is 9.5%, what is the intrinsic value of Deployment Specialists sto..
The spot rate between Japan and the U.S. is ¥100.37 = $1, while the one-year forward rate is ¥99.97 = $1. A one-year risk-free security is the U.S. is the yielding 3.8%. What is the rate of return on a one-year risk-free security in Japan assuming th..
Ngala Ltd. currently has no debt in their capital structure. They are considering recapitalizing the firm and adding about 25% debt. The loan requires an interest rate of 7%. The firm is in the 35% tax bracket. Currently, the firm has a beta of 1.02...
What is the coupon payment of a 25-year $1000 bond with a 4.5% coupon rate with quarterly payments? What is the coupon rate of an eight-year, $10,000 bond with semiannual coupons and a price of $9006.6568, if it has a yield to maturity of 6.5%?
Stock J has a beta of 1.28 and an expected return of 13.56 percent, while Stock K has a beta of 0.83 and an expected return of 10.5 percent. You want a portfolio with the same risk as the market. What is the portfolio weight of each stock? What is th..
Assume a firm’s revenues and net incomes are projected to grow by 10% per year into the foreseeable future. What terminal value growth rate is most appropriate for the free cash flow valuation model when WACC is 11%?
What is the price of a 6% coupon bond with 30 years left to maturity and a market interest rate of of 8.25%? is this discount or a premium bond? (hint: interest payments are semi-annual and fair value is $1000) please draw a time line and use a finan..
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