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A loan for $50,000 is made for 10 years at 8 percent interest and no monthly payments are scheduled.
a. How much will be due at the end of 10 years?
b. What will be the yield to the lender if it is repaid after 8 years? (Assume monthly compounding.)
c. If 1 point is charged in (b) what will be the yield to the lender?
Briefly explain the role of financial leverage in affecting returns on equity ? What is an interest tax shield, and how does this affect the value of a company?
During the Great Recession of 2008-2009, corporate cash conversion cycles typically increased in length by a significant amount. Why might this have occurred? Was it a good decision by corporate CFOs to allow this to happen? Explain
Assume that you are the portfolio manager of the SF Fund, a $3 million hedge fund that contains the following stocks. The required rate of return on the market is 11.00% and the risk-free rate is 5.00%. What rate of return should investors expect (an..
You have a line of credit arrangement which allows you to borrow up to $80 million at any time. The interest rate is 0.63% per month. The arrangement also requires a compensating balance equal to 6% of the amount borrowed which must be placed in a no..
A stock price is currently $46. Over each of the next 2 6-month periods it is expected to go up by 10% or down by 10%. The risk-free rate is 8% per annum with continuous compounding. What is the value of a 1-year European call option with a strike pr..
Two years after the bonds were issued, the going rate of interest on similar bonds fell to 8 percent. At what price would the bonds sell and If you bought the bond on the issue date at the issue price and expected to hold it until it matures on Dec..
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Community Hospital has annual net patient revenues of $150 million. At the present time, payments received by the hospital are not deposited for six days on average. An important source of temporary cash is trade credit, which does not actually bring..
You buy a share of stock, write a one-year call option with X = $18, and buy a one-year put option with X = $18. Your net outlay to establish the entire portfolio is $17.50. What must be the risk-free interest rate? The stock pays no dividends.
A firm recently paid a $0.70 annual dividend. The dividend is expected to increase by 14 percent in each of the next four years. In the fourth year, the stock price is expected to be $54. If the required return for this stock is 16.5 percent what is ..
If a firm buys on trade credit of 1/15, net 90 and decides to forgo the trade credit discount and pay on the net day, what is the annualized cost of forgoing the discount (assume a 360-day year)? The annualized cost of the trade credit terms of 1/15,..
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