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AAA firm’s semiannual bond has 12 years maturity and coupon rate of 8.75% semiannually. The firm also sells annual bonds with all the same condition except the coupon is paid annually (means ytm is the same). What is the price of this annual coupon bond?(hint: the two bonds should offer the same annual effective rate, not semi-rate * 2
?Solve with financial calculator : PV= FV= PMT= I= etc.
A borrower took out a 30-year fixed-rate mortgage of $2,250,000 at a 6.2% annual rate with monthly payments. After five years, she wishes to pay off the remaining balance. Interest rates have by then fallen to 4.0%. How much must she pay to retire th..
"Mr. Art Deco will be paid $100,000 one year hence. This is a nominal flow, which he discounts at an 8% nominal discount rate: PV = 100,000/1.08 = $92,593 The inflation rate is 4%. Calculate the PV of Mr. Deco’s payment using the equivalent real cash..
What are some ways in which a firm can improve its cash position? What are some ways that a firm can harm its cash position? Conduct your own research to determine additional cash management techniques.
Based solely on the tax treatment of dividends why might a retired person prefer dividends to capital gains and explain why the Bird-in-the-Hand explanation of dividend policy is a fallacy.
In actual practice, managers most frequently use which two types of investment criteria?
Big Bass Sound (BBS) is a thriving music business. You would like to understand the market risk of BBS and are looking to find its Beta of the Assets. BBS' Beta of Equity is 3.9, the beta of debt is 0.4, and the tax rate is 34%. BBS has 273 in debt o..
Consider a four-year project with the following information: initial fixed asset investment = $430,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $24; variable costs = $16; fixed costs = $120,000; quantit..
Cooling Tools, Inc. is currently producing 1306 of small refrigerators per month but the company’s CEO plans to increase production at a rate of 8.04 percent per month until the firm is producing 7043 of refrigerators per month. How many months will ..
Assume that your father is now 50 years old, that he plans to retire in 10 years, and that he expects to live for 25 years after he retires, that is, until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he..
Trust Bankers just paid an annual dividend of $1.9 per share. The expected dividend growth rate is 6.7 percent, the discount rate is 12 percent, and the dividends will last for 8 more years. What is the value of the stock? If the return on equity for..
Consider one of the two equations that can be used to calculate a firm's cost of equity: rE=Div1/P0+g. If the expected growth rate of American Airlines common stock dividends increases and if the price of AAL's stock also increases, what happens to A..
Assessing key ratios of the industry is an example of
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