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Dave and Marlene Carter live in the Boston area, where Dave has a successful orthodontics practice. Dave and Marlene have built up a sizable investment portfolio and have always had a major potion of their investments in fixed-income securities. They adhere to a fairly aggressive investment posture and actively go after both attractive current income and substantial capital gains. Assume that it is now 2010 and Marlene is currently evaluating two investment decisions; one involves an addition to their portfolio, the other a revision to it. The Carters' first investment decision involved a short-term trading opportunity. In particular, Marlene has a chance to buy a 7.5%, 25 year bond that is currently priced at $852 to yield 9%; she feels that in two years the promised yield of the issue should drop to 8%. The second is a bond swap. The Carters hold some Beta corporation 7%, 2023 bonds that are currently priced at $785. They want to improve both current income and yield-to-maturity, and are considering one of three issues as a possible swap candidate: (a) Dental Floss, Inc. 7.5%, 2035, currently priced at $780; (b) Root Canal Products of America, 6.5%, 2023, selling at $885; and (c) Kansas City Dental Insurance, 8%, 2024, prices at $950. All of the swap candidates are of comparable quality and have comparable issue characteristics. b) Regarding the bond swap opportunity: 1. Compute the current yield and the promised yield (use semiannual compounding) for the bond the Carters currently hold and for each of the three swap candidates. 2. Do any of the three swap candidates provide better current income and/or current yield than the Beta Corporation bonds the Carters now hold? If so, Which one(s)? 3. Do you see any reason why Marlene should switch from her present bond holding into one of the other three issues? If so, which swap candidate would be the best choice? Why?
Write down the the name of some problems which are associated with using the discounted cash flow technique of valuation.
Robert Blanding's employer offers its workers a two-month paid sabbatical every seven years. Assume Robert increases his annual contribution to $3,150. How large will his account balance be in seven years?
You borrowed $27,000 for your education to be repaid in quarterly installments for five years. If the interest rate is 9% compounded quarterly what is your quarterly payment?
The Marginal Tax rate is 35%. D. Calculate the after tax cash flows for the project for each year. Explain the methods used in your calculations.
What was the net rate of return on this investment, assuming you are in the US and measure your return in terms of USD?
Segmentation of consumer markets can lead to questionable practices, specifically in targeting what some may define as "vulnerable" market segments. For example, very young children are considered by some to be "vulnerable".
Construct an example of the cycle of money, identify all the players involved, and identify their individual benefits from participating in the cycle of money.
Which of the two long-term financing securities (debt or equity) would potentially maximize shareholder earnings more?
Plot the time path of the prices for each of the two bonds (x-axis = years to maturity; y-axis = bond value)
Dividends have grown at the rate of 5.1% per yeat and are expected to continue to do so for the foreseeable future. What is Crypton's cost of capital where the firm's rate is 30%?
You have $100,000 to invest in a portfolio containing Stock X, Y and a risk-free asset. You must invest all of your money. Your goal is to create a portfolio that has an expected return of 13.5 percent and that has only 53 percent of the risk of the ..
O'Connell & Co. expects its EBIT to be $95,000 every year forever. The firm can borrow at 8 percent. O'Connell currently has no debt, and its cost of equity is 13 percent and the tax rate is 35 percent. The company borrows $133,000 and uses the pr..
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