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1. You believe that there is a 15% probability of a recession and 85% probability of a normal economy. If a fund is expected to earn -12% in a recession and 15% in a normal year, what is the standard deviation of returns for this fund?
A) 8.2%
b) 9.6%
c)10%
d)11.4%
e)13.2%
2. Banking institutions often require more collateral on a loan-to-value basis when making a loan to start up company
True or false
3. The basic financial metric typically used to determine whether an investment activity is, at least, minimally worth the risk of investment is the risk-free rate of return
Kwame and Omarosa, both age 40, have $80,000 of combined retirement assets. They both expect to retire at the age of 65 with a life expectancy of 100 years old. They expect to earn 10% on the assets within their retirement accounts before retirement ..
The liquidity of Baja Corporation has been decreasing, and it contemplates a rights issue. There are currently 2 million shares outstanding with a market value of $60 each. How many shares must be held to obtain the right to one new share, and what w..
Futabatei Enterprises purchased a delivery truck on January 1, 2014, at a cost of $44,550. The truck has a useful life of 7 years with an estimated salvage value of $9,900. The straight-line method is used for book purposes. Determine the total depre..
If there is $30 million in retained earnings, at what dollar value will the marginal cost of capital go up? If flotation cost on common stock is $1.50, what will be the cost of the new common stock?
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The firm is expected to pay a dividend of $4.20 in the upcoming year. Dividends are expected to grow at the rate of 8% per year. The riskfree rate of return is 3% and the expected return on the market portfolio is 12%. Investors use the CAPM to compu..
Last year TA Co. issued a 10-year, 12% semiannual coupon bond at its par value of $1,000. Currently the bond can be called in 4 years at a price of $1,060 and it sells for $1,100. What are the bond’s nominal yield to maturity and its nominal yield to..
Boyd Crowder's Chowder, Inc. desires a sustainable growth rate of 3.8 percent while maintaining a 49 percent dividend payout ratio and a 4.9 percent profit margin. The company has a capital intensity ratio of 1.21. What equity multiplier is required ..
Peace of Mind, Inc. (PMI), sells extended warranties for durable consumer goods such as washing machines and refrigerators. When PMI sells an extended warranty, it receives cash up front from the customer, but later PMI must cover any repair costs th..
Firms prefer to cut dividend payments rather than borrow money to fund a short-term cash need. Share repurchases tend to increase agency costs. Maintaining a steady dividend is a key goal of most dividend-paying firms.
If I purchase a policy that pays a fixed benefit of 90% of my current salary, how long will it be before this amount covers only 70% of my future salary if I assume salary increases of 4% per year?
Evaluate the company's weights of capital (debt, preferred stock and common stock) and estimate the company's before-tax and after-tax component cost of debt.
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