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If the Bank of England is willing to pay 1.3% on a 5-year maturity and 0.88% on a 3-year maturity, you are keen to buy the 3-year rate but are unsure whether to go further to purchase the 5-year due to worries of on-coming recessions and not wanting to have your money tied up for longer. You want to know what the implied 2-year rate on the Gilt is 3years from now so you can appropriately make such an investment decision. What principle/theory allows you to make this analysis? Perform the analysis, what is the forward rate of a 2-year Gilt, 3 years into the future? Suppose the BOE gives you the option to lock-in (today, 3 years early) the rate you just calculated by using a forward rate contract, would you do it? In what situation would your bond portfolio underperform the 5-year maturity of 1.3%, in what situation would it over perform?
A five-year software development project is forecast to have net cash inflows of $15,000, $20, 000, $25,000, $30,000, and $50,000 in the next five years. It will cost $80,000 to implement the project, payable at the beginning of the project. If the r..
Secolo Corporation stock currently sells for $77 per share. The market requires a return of 9.2 percent on the firm’s stock. If the company maintains a constant 2.6 percent growth rate in dividends, what was the most recent dividend per share paid on..
A common stock is held for five years, during which time it receives an annual dividend of $5. the stock was sold for $110 and generates an average annual return of 14%. what price was paid for the stock?
Any changes to a firm's projected future cash flows that are caused by adding a new project are referred to as which one of the following?
Kelly Flooring spent 6 years and $800,000 to develop its new style of hardwood floors to replace a line that is becoming obsolete. To roll out its new look hardwood floors to potential builders, the company will have to invest $550,000 in new tools a..
Morris-Meyer Mining Company must install $1.7 million of new machinery in its Nevada mine. It can obtain a bank loan for 100% of the required amount. Alternatively, a Nevada investment banking from that represents a group of investors believes that i..
Due to a recession, expected inflation this year is only 3%. However, the inflation rate in year 2 and thereafter is expected to be constant at some level above 3%. Assume that the expectation theory holds and the real risk free rate (r*) is 2%. If t..
What are the differences between credit risk, market risk, and operational risk?
The current stock price for a company is $49 per share, and there are 3 million shares outstanding. The beta for this firms stock is 1.4, the risk-free rate is 4.1, and the expected market risk premium is 6.2%. what is the Weighted Average Cost of Ca..
Assuming BP has about 3 billion shares outstanding, how much (in terms of dollars) did BP’s shareholders lose due to the oil spill from the day of the explosion April /01/2015 to 6/28/10? Explain.
Which of the following are usually known with a high level of confidence at the beginning of a project? A. The number of units that will be sold B. The price per unit that will result in the desired number of units sold C. Tax rates and depreciation ..
Buster’s Beverages is negotiating a lease on a new piece of equipment that would cost $100,000 if purchased. The equipment falls into the MACRS 3-year class, and it would be used for 3 years and then sold, because the firm plans to move to a new faci..
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