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Dooley, Inc., has outstanding $100 million (par value) bonds that pay an annual coupon rate of interest of 10.5 percent. Par value of each bond is $1,000. The bonds are scheduled to mature in 20 years. Because of Dooley’s increasedrisk, investors now require a 14 percent rate of return on bonds of similar quality with 20 years remaining until maturity. The bonds are callable at 110 percent of par at the end of 10 years. •a. What price would the bonds sell for assuming investors do not expect them to be called? b. What price would the bonds sell for assuming investors expect them to be called at the end of 10 years?
Suppose that a firm will pay dividends of $3.50 next year and $3 in two years. In year 3, the dividend will be $6, and afterwards the dividend will grow at a constant rate of 7% per year. What will be the value of each share of the firm in two years ..
Stocks A and B have standard deviations of 8% and 15% respectively. the correlation between the two stocks returns has historically been .35. what is the standard deviation of a portfolio consisting of 60% invest in stock A and 40% invest in stock b?
You are asked to estimate after tax cost of debt financing. It can issue 29 years to maturity bonds with a coupon rate of 10.57% paid annually, and par value of $1000. The bonds can be sold now at a price of $1,160 each. Marginal tax rate is 35%. The..
Given the returns and probabilities for the three possible states listed here, calculate the covariance between the returns of Stock A and Stock B. For convenience, assume that the expected returns of Stock A and Stock B are 0.13 and 0.19, respective..
Calculate the NPV for a 30 year old project with a initial investment of $35,000 and a cash inflow of $8,000 per year. Assume the firm has an opportunity cost of 13%.
Stock in Daenerys Industries has a beta of 1.8. The market risk premium is 5 percent, and T-bills are currently yielding 4.8 percent. The company’s most recent dividend was $2.00 per share, and dividends are expected to grow at an annual rate of 5 pe..
A company issues a ten year $1,000 value bond at par with a coupon rate of 6.1% paid semiannully. The Ytm at the beginning of the third year of the bond ( 8 years left to maturity) is 8.1 %. What is the new price of the bond?
The corporate bylaws are identical for all firms incorporated in a particular state. Corporate bylaws dictate a firm's behavior inside its home country and corporate charter outline rules for operating in foreign countries. For a manufacturing firm, ..
Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed €30 million which is payable in one year. The current spot exchange rate is $1.05/€ and the annual inter- bank interest rate is 6.0% in the U.S. and ..
Use the financial information given in the following table to compute the firm’s (a) degree of operating leverage (DOL), (b) degree of financial leverage (DFL), and (c) degree of total leverage (DTL). The firm has no preferred stock.
Last week you discussed the questions you would ask a CFO of a company before beginning an audit engagement. Think about this same conversation, but this week I want you to identify three specific questions you would as him/her which would help you t..
Suppose the real rate of interest is 1%, expected inflation is 2%, the default risk on a given bond is 3%, the liquidity premium is 2%, and the maturity premium is 1%. What is the risk free rate of return? What is the interest rate for this bond?
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