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Bond Duration
A bond has a duration of five years and a yield to maturity of 9 percent. If the yield to maturity changes to 10 percent, what should be the percentage price change of the bond?
ACME is a very cyclical type of business which is reflected in its dividend policy. The firm pays a $2.00 a share dividend every other year. The last dividend was paid last year. Five years from now, the company is repurchasing all of the outstanding..
What are the three forms of the Efficient Market Hypothesis (EMH)? Please describe each one. Why do some investors invest in index mutual funds? Does it have anything to do with market efficiency? Why do many portfolio managers still utilize fundamen..
Do the computations for the example below. Show the computations step by step, so Mr. Hillbrandt can easily follow your examples. 1. The company’s common stock dividends are anticipated to grow at a constant 5.5% growth rate per year going forward. T..
Grace Hesketh is the owner of an extremely successful dress boutique in downtown Chicago. Although high fashion is Grace’s first love, she’s also interested in investments, particularly bonds and other fixed income securities. Find the duration of th..
Lawrence Industries most recent annual dividend was $1.80 per share and the firm's required return is 11%. If dividends are expected to grow by 5% annually for 3 years and follows by a 2% constant growth rate in years 4 to infinity. What is the valua..
Suppose 1-year Treasury bonds yield 4.00% while 2-year T-bonds yield 5.10%. Assuming the pure expectations theory is correct, and thus the maturity risk premium for T-bonds is zero, what is the yield on a 1-year T-bond expected to be one year from no..
Your division is considering two investment projects, each of which requires an up-front expenditure of $25 million. You estimate that the cost of capital is 12% and that the investments will produce the following after-tax cash flows (in millions of..
Matrix Co. has issued a preferred stock that pays a constant dividend of $3.50 per share. The company’s stock investors require a 8% return. What is your estimate of the preferred stock’s current price?
Define the term "Statement of Cash Flows." Explain why and how the statement of cash flows is important information you would need to run a business? In your opinion, do the three three main sections of the statement of cash flows also apply to you a..
Your firm is contemplating the purchase of a new $645,000 computer-based order entry system. The system will be depreciated straight-line to zero over its six-year life. It will be worth $47,000 at the end of that time. Suppose your required return o..
Haskell Corp. is comparing two different capital structures. Plan I would result in 14,000 shares of stock and $100,000 in debt. Plan II would result in 10,800 shares of stock and $180,000 in debt. The interest rate on the debt is 8 percent. Ignoring..
You manage an operating budget of approximately $500,000. You have been instructed to cut your budget by 10 percent two months after you had agreed to a barebones budget for the upcoming year. What do you do if you know that the cuts will affect pati..
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