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An analyst evaluating securities has obtained the following information. The real rate of interest is 2.4% and is expected to remain constant for the next 5 years. Inflation is expected to be 2.1% next year, 3.1% the following year, 4.1% the third year, and 5.1% every year thereafter. The maturity risk premium is estimated to be 0.1 × (t – 1)%, where t = number of years to maturity. The liquidity premium on relevant 5-year securities is 0.5% and the default risk premium on relevant 5-year securities is 1%.
a. What is the yield on a 1-year T-bill? Round your intermediate calculations and final answer to two decimal places.
%
b. What is the yield on a 5-year T-bond? Round your intermediate calculations and final answer to two decimal places.
c. What is the yield on a 5-year corporate bond? Round your intermediate calculations and final answer to two decimal places.
Ms. Chambers, a U.S. arbitrageur, is looking for arbitrage opportunities after interest rate changes. The available funds for arbitrage is $5,000,000. The spot exchange rate (Kr/USD) is 6.1720; 3 month forward rate (Kr/USD) 6.1980. If arbitrage is po..
The Walgreen Corporation is contemplating a new investment that it plans to finance using one-third debt. The firm can sell new $1000 par value bonds with a 15 year maturity at a price of $950 that carries a coupon interest rate of 12.9 percent that ..
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Consider a project with the following cash flows -100, 230 and -134 at time 0, 1 and 2, respectively. Obtain the IRR(s) of the project. Consider a project with the following cash flows -100, 230 and -134 at time 0, 1 and 2, respectively. Obtain the N..
Great Wall Pizzeria issued 8-year bonds one year ago at a coupon rate of 6.1 percent. If the YTM on these bonds is 7.5 percent, what is the current bond price?
Suppose your company needs to raise $45 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond issue will be 6 percent, and you’re evaluating two issue alternatives: Calculate the aftertax cash flows for..
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As an investor, what do you anticipate will be the outcome for Target Corporation by the end of the current fiscal year? Do you forecast improvement or loss? What do you forecast as the market price of the stock?
Assume that Wal-Mart Stores, Inc. has decided to surface and maintain for 10 years a vacant lot next to one of its stores to serve as a parking lot for customers. Management is considering the following bids involving two different qualities of surfa..
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