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a) The real risk-free rate is 2.65%. Inflation is expected to be 3.2% this year, 4.1% next year, and then 2.5% thereafter. The maturity risk premium is estimated to be 0.05(t - 1)%, where t = number of years to maturity. What is the yield on a 7-year Treasury note? Round your answer to two decimal places.
b) A company's 5-year bonds are yielding 8.7% per year. Treasury bonds with the same maturity are yielding 5.9% per year, and the real risk-free rate (r*) is 2.65%. The average inflation premium is 2.85%, and the maturity risk premium is estimated to be 0.1(t - 1)%, where t = number of years to maturity. If the liquidity premium is 1.35%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.
Comparing degrees of translation exposure. Based on the information provided, which firm is subject to a higher degree of translation exposure? Explain.
Harlan County Mining, a Kentucky-based coal mine, has expected earnings before interest and taxes of $6.2 million. Its unlevered cost of capital is 13 percent and its tax rate is 34 percent. The firm has debt with both a book and a market value of $3..
Identify two barriers you face when you try to listen and explain the ways these barriers could create - or have created - a problem for you.
There are several accepted methods of determining the monetary advantage of one investment opportunity over another: The payback method; zero discount rate; net present value; internal rate of return; modified internal rate of return; etc. Discuss on..
An investor has two bonds in his portfolio that both have a face value of $1,000 and pay a 9% annual coupon. Bond L matures in 14 years, while Bond S matures in 1 year. Assume that only one more interest payment is to be made on Bond S at its maturit..
The Swift Company is planning to finance an expansion. The principal executives of the company agree that an industrial company such as theirs should finance growth by issuing common stock rather than by taking on additional debt.
Bright star bank pays a nominal annual interest rate of 11.36 percent compounded quarterly on your savings account. Calculate the effective annual rate or EAR (answer plus units) round 2 decimal places
The cost of debt for firm XYZ is 6%. Its tax rate is 40%. The cost of retained earnings is 12% and the cost of external common equity is 14%. Retained earnings are $5000. The target capital structure calls for 45% debt and 55% equity. Compute the opt..
Suppose you are a finance student interviewing for a job and the interviewers ask you what would cause an increase in net working capital. Which of the following would be the best response?
Assume you are in the 29 percent tax bracket and purchase a 5.2 percent municipal bond. Calculate the taxable equivalent yield for this investment.
The MoMi Corporation’s income before interest, depreciation and taxes, was $1.6 million in the year just ended, and it expects that this will grow by 5% per year forever. To make this happen, the firm will have to invest an amount equal to 16% of pre..
Abbott Lab made $2.80 net income per share last year and paid out $1.30 in dividend. The company had a book value (or equity) per share of $20. The market has a risk free rate of 3.1% and market return 11.1%. Abbott has a historical beta of .90. Calc..
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