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Finance: Calculate bonds selling price; which is more valuable?

The current market rate for a bond is 8%. Calculate the selling price of the following bonds assuming annual interest payments: A. 5% bond with 2 years until maturity. B. 5% bond with 5 years until maturity. C. 10% bond with 5 years until maturity. Which bond is currently the most valuable? Why?

Standard deviation of a portfolio..

You put half of your money in a stock that has an expected return of 14% and a standard deviation of 24%. You put the rest of your money in another stock that has an expected return of 6% and a standard deviation of 12%. The two stocks have a correlation coefficient of 0.55. The standard deviation of the resulting portfolio will

Corporate finance, how to calculate the opportunity cost

Sporty Inc, a sport equipment manufacturer, is considering a new project that will take advantage of excess capacity in an existing plant. The plant has a capacity to produce 50,000 tennis rackets, but only 25,000 are currently being produced. The sales of the tennis rackets, however, are expected to increase 10% a year. The fir

Finance : Interest Rates and the Time Value of Money

Suppose the risk-free interest rate is 4%. a. Having $200 today is equivalent to having what amount in one year? b. Having $200 in one year is equivalent to having what amount today? c. Which would you prefer, $200 today or $200 in one year? Does your answer depend on when you need the money? Why or why not?

Debt Versus Equity.

Suppose you are the CFO of a major corporation who is deciding in whether to issue debt or equity in order to finance the firms operations which are growing more than 15% a year, bottom line growth, in the health care field. Which form of financing would you choose and why? What are the advantages of each?

Financial performance: Landry's Restaurants

Using the financial statements of Landry's Restaurants located in Appendix A of the text, Fundamentals of Financial Accounting 1st ed., by Phillips, Libby, and Libby, compute the following ratios for 2002 and 2003: a. Net profit Margin b. Gross profit margin c. Fixed asset turnover d. Return on equity (ROE) e. Earnings per

Eric's Retirement Plan

Your brother, Eric, has asked your advice on creating a retirement plan. He is 35 years old, earns US$55,000 per year with average raises of 4% per year, and plans to work until the age of 65. His company offers a 401(k) plan with matching contributions of up to 8% of his income that has been earning an average of 10% per year.

Average Inflation of a 5-year treasury bond

A 5-year treasury bond has a 5% yield. a 10-year treasury bond has a 6% yield. a 10-year corporate bond has an 8% yield. the market expects that inflation will average 2.5% over the next 10 years (IP10=2.5%). Assume that there is no maturity risk premium (MRP=0), and that the annual real risk-free rate of interest, r*, will rema

Question about Stock Splits

Capra's stock trades at $60 a share. Capra's stock trades at $60 a share. The company is contemplating a 3-for-2 stock split. Currently, the company has EPS of $3.00, DPS of $0.50, and 10 million shares of stock outstanding. Assuming that the stock split will have no effect on the total market value of its equity, what wil

Stock returns problem

Assume that in recent years, both expected inflation and the market risk premium (rM - rRF) have declined. Assume also that all stocks have positive betas. Which of the following would be most likely to have occurred as a result of these changes? A. The average required return on the market, rM, has remained constant, but the

Finance inquiries

Which of the following statements is CORRECT? A. The constant growth model takes into consideration the capital gains earned on a stock. B. It is appropriate to use the constant growth model to estimate stock value even if the growth rate is never expected to become constant. C. Two firms with the same expected dividend and

Portfolio problem

Stock A has an expected return of 10% and a beta of 1.0. Stock B has a beta of 2.0. Portfolio P is a two-stock portfolio, where part of the portfolio is invested in Stock A and the other part is invested in Stock B. Assume that the risk-free rate is 5% and that the market is in equilibrium. Portfolio P has an expected return of

Developing responses to assessed risks in terms of testing

Developing responses to assessed risks Your client, General Television, Inc. manufactures televisions and during the current year acquired Micro Engineering, Inc., which manufactured flat panel plasma screens for computers so that it could compete in the market for flat panel televisions. Following is a list of several risks

Stock/portfolio problem

Your portfolio consists of $50,000 invested in Stock X and $50,000 invested in Stock Y. Both stocks have an expected return of 15%, a beta of 1.6, and a standard deviation of 30%. The returns of the two stocks are independent, so the correlation coefficient between them, rxy, is zero. Which of the following statements best descr

Calculating EMI of a loan

A.) On January 1, 2007, Sammy Sosa offers to buy Mark Grace's used snowmobile for $8,000, payable in 5 equal installments, which are to include 8.25% interest on the unpaid balance and a portion of the principal. If the first payment is to be made on January 1, 2007, how much will each payment be? B.) Repeat the requirements

Cost accounting

Various questions. 1. Managerial accounting information A) pertains to the entity as a whole and is highly aggregated. B) must be prepared according to generally accepted accounting principles. C) pertains to subunits of the entity and may be very detailed. D) is prepared only once a year. 2. Which one of the follo

What amount of cash will be made available for other uses under the lockbox system? Evaluate the proposed relaxation, and make a recommendation to the firm. Determine the effective annual rate associated with this loan.

Problem 1: American Steel and Rubber feels that a lockbox system can shorten its accounts receivable collection period by 2 days. Credit sales are $3,000,000 per year, billed on a continuous basis. The firm has other equally risky investments with a return of 15%. The cost of the lockbox system is $9,000 per year. (Note: Assume

Financial analysis of GM for 3 years including ratios

I have several things to accomplish for an indepth company analysis on GM for 3 years. I am having difficulty with collecting the data and doing the ratios. I then have to answer the following questions. Collect stock data?price, shares outstanding, etc. Calculate financial ratios, and compare to industry average. What ca

Analyzing a Friend's Business

Your friend, Michelle, has just purchased a business. Because Michelle knows that you have just received your Associate's in Management at a university, she has asked for you help in evaluating the firm. Michelle is not asking you to make a decision for her; she just wants you to help provide her with facts as you see them. Y

Modern Portfolio Theory: indifference curves, risk, CML and SML

Would you please explain these questions: 1. How does the use of indifference curves help determine which portfolio an investor would choose on the efficient frontier? What do the indifference curves implies about an investor's willingness to bear risk? 2. How are the capital market line (CML) and the security market line

Value of Firm at the End of Four Years

A company is not expected to generate a FCF over the next four years. Five years from now, the company anticipates that it will generate a FCF of $1.00 (i.e., FCF5=$1.00). The market expects that the FCF will grow at a constant rate of 5 percent per year forever. The risk-free rate is 5 percent, the company's beta is 1.2, and th

Investment alternatives for 3 countries over 4 years. Which do you recommend?

See the attached file. Given the return data on three countries over a period of 2007-2010, calculate the expected return over the 4 year period. Calculate the standard deviation of returns over the 4 year period for each of the three alternatives. Use your finding in part a and b to calculate the coefficient of variation for

Du Pont Analysis Finance

Need help in solving these problems: 1. Given the following financial data: net income/sales = 5%; sales/total assets = 2.5; debt/total assets = 60 percent; compute: a. Return on assets. b. Return on equity. 2. Explain in problem 1 why return on equity was so much higher than return on assets. 3. A firm has assets