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You own a bond with duration of 4.5 and a convexity of 77. If interest rates decrease by 50 basis points, what is the percentage change in the price of your bond?
Suppose that a firm’s recent earnings per share and dividend per share are $2.70 and $1.70, respectively. Both are expected to grow at 7 percent. However, the firm’s current P/E ratio of 26 seems high for this growth rate. The P/E ratio is expected t..
Benjamin Pinkerton from New York invested in a U.S. two-year zero-coupon bond at the start of the period and sold it after one year. What was his return?
Watters Umbrella Corp. issued 20-year bonds 2 years ago at a coupon rate of 6.4 percent. The bonds make semi-annual payments. If these bonds currently sell for 110 percent of par value, what is the YTM?
Individuals Lloyd and Grace form an S corporation, with Lloyd contributing cash of $100,000 for a 50% interest, and Grace contributing appreciated ordinary income property (adjusted basis of $20,000 and a fair market value of $100,000). Determine Llo..
In late 1993, the Weyerhauser Corporation was considering the use of a so-called “Industrial Development Bond” to help finance the construction of a facility in the state of North Carolina. Why would Weyerhauser’s IRBs have a lower effective annual y..
The following are three one year "discount" loans that a bank might offer to the customer. Determine the amount of interest the bank would make on each loan and indicate the amont of net proceeds that the bank would pay our on each loan. On which loa..
Sydney wins a prize. She has a choice of receiving a payment of $160,000 immediately or of receiving a deferred perpetuity with $10,000 annual payments, the first payment occurring in exactly four years. Which has a greater present value if the calcu..
You borrowed $45 from a friend and after ten months repaid $50.. What monthly interest rate did you pay? (xx.xx%) What nominal annual interest rate did you pay? (xx.xx%) What was the annual effective rate?
Hart Enterprises recently paid a dividend, D0, of $3.25. It expects to have nonconstant growth of 15% for 2 years followed by a constant rate of 5% thereafter. The firm's required return is 19%. What is the horizon or terminal value?
Why does a bankrupt firm under Chapter 11 generally require its bondholders to convert their debt to equity of the company after the reorganization?
A firm has $80 million in debt and 60% of its capital structure consists of common equity. The firm has no preferred stock. The firm’s bonds have YTM of 8.5%, and the firm is subject to a 30% corporate tax rate. The firm has common stock with a beta ..
Sixth Fourth's Bank is trying to determine its cost of debt. The firm has a debt issue outstanding with nine years to maturity that is quoted at 105 percent of face value. The issue makes semiannual payments and has an embedded cost of 4.1 percent an..
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