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Johnson Inc has 2,000 bonds and 300,000 shares of common stock outstanding. The common stock has a beta of 1.3 and trades at $18 per share. The bonds are $1,000 face value with a 5% coupon rate, paid semi annually, and currently trade at $985. 8 years to maturity. The firm is in 40% tax bracket. You have estimated the market risk premium to be 6% and yield on 10 year U.S. treasuries is 4%. The CAPM holds.
A. What is the yield to maturity on the firm’s bonds?
B. Using CAPM what is the required rate of return on firm’s equity?
C. What is the firm WACC?
An investor purchases a stock for $45 and a put option for $.85 with a strike price of $41. The investor also sells a call option for $.85 with a strike price of $54. What is the maximum profit and loss for this position?
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Helen's income tax liability for 2011 was$24,000. Her self-employment tax was $4,000. Helen projects that her income tax for 2012 will be $34,000 and her self-employment tax will be $6,000. Helen will have $4,000 of income tax withholdings in 2012. C..
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