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An investment producing cash flows in the amount of $1,200 per month is undertaken for a period of 28 months. The investor pays $24,000 for the investment and the contract stipulates that investment returns must be reported on a basis equivalent with annual compounding.
Given that the investment is sold after 28 months, what would be the equivalent annual compound rate of interest reported to the investor? What would be the annual rate compounded monthly for this investment?
Frontier Bank offers one-year loans with a stated rate of 7.5 percent, charges a 1/4 percent loan origination fee, imposes a 5 percent compensating balance requirement, and has a 10 percent reserve requirement. Suppose that the pension fund you are m..
Petrobras’s cost of equity is estimated using the CAPM (Capital Asset Pricing Model). Observe that Petrobras’s beta has been calculated using the NYSE stock index as the market portfolio.
The Wildcat Oil Company is trying to decide whether to lease or buy a new computer-assisted drilling system for its oil exploration business. Management has decided that it must use the system to stay competitive; it will provide $2.7 million in annu..
Stock Y has a beta of 1.0 and an expected return of 13.5 percent. Stock Z has a beta of .6 and an expected return of 9 percent. What would the risk-free rate have to be for the two stocks to be correctly priced?
Assume the rate on the issuance of $100m of 100-year bonds is 7.5%; the annual debt service payment would be $7.505m. How high would the interest rate have to be on 30-year bonds for the annual debt service payment to be the same for both financings?
Thomas Brothers is expected to pay a $3.3 per share dividend at the end of the year (that is, D1 = $3.3). The dividend is expected to grow at a constant rate of 3% a year. The required rate of return on the stock, rs, is 17%. What is the stock's curr..
A stock is trading at $55 per share. The stock is expected to have a year-end dividend of $2 per share and expected to grow at same constant rate g throughout time. The stocks required rate of return is 16 %( assume the market is in equilibrium with ..
An investment offers 10,000 per year, with the first cash flow to be received today. If the relevant interest rate is 8% per year, what is the pv of the investment ( at year 0) ? should the answer be 135000? You can make 450 monthly payments for 5 yr..
Soprano’s Spaghetti Factory issued 17-year bonds two years ago at a coupon rate of 7.40 percent. If these bonds currently sell for 96.5 percent of par value, what is the YTM?
You are in the market to purchase a new automobile. Marginal Deal , Inc. will give you $500 off the list price on a $10,000 Porsche deal. Consider the following historical events relating to your automobile purchase. You can get the same care from Gr..
Assume that you are looking at an investment opportunity that offers an annual operating cash flow of $40,000 per year for 4 years. The initial investment to purchase the necessary equipment is $200,000. You assume that you can sell the equipment at ..
What will be the effect on bond prices and interest rates?- Who is likely to have gained the most: investors who bought long-term bonds in 2010 or investors who sold them? Briefly explain.
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