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1) If interest rate parity holds, what is the yield today on 1-year, risk-free Japanese securities? 2) If 9 percent after-taxes is the investors required return, what before-tax rate would the domestic bond need to pay to provide that after-tax return?

1) In the spot market, 1 U.S. dollar can be exchanged for 121 Japanese yen. In the 1-year forward market, 1 U.S. dollar can be exchanged for 125 Japanese yen. The 1-year, risk-free rate of interest is 5.2 percent in the United States. If interest rate parity holds, what is the yield today on 1-year, risk-free Japanese securiti

Financial Economics

Your investment horizon is one year. You observe that the government is offering a completely safe one-year Treasury instrument with a 5 percent return. You also assume that the historical returns above give you the best available information about future expected returns, variances and covariances for the alternative asset cl

Explaining and Calculating WACC

Please help with the following problem. A firm has 2,000,000 shares of common stock outstanding with a market price of $2.00 per share. It has 2,000 bonds outstanding, each selling for $1,200. The bonds mature in 15 years, have a coupon rate of 10% and pay coupons annually. The firm's beta is 1.2, the risk free rate is 5%, a

Cash Conversion Cycle

1) For the Morton Inc Company, the average age of accounts receivable is 60 days, the average age of accounts payable is 45 days, and the average age of inventory is 72 days. Assuming a 365-day year, what is the length of the firms cash conversion cycle? a. 87 days b. 90 days c. 65 days d. 48 days e. 66

Interest rate derivative management

A fund wishes to sell (write) European calls on 2-year, 4.5% coupon Treasury notes. The notes currently sell for $98.90. The one-year forward rate (r0) is 4.65 percent. The assumed one-year forward rate one year from now (r1,L) is 5.0 percent. The standard deviation is 10 percent. Fill in the seven boxes of the following binomia

Discount Bond

If the interest rate is 8%, what would you expect to pay for a discount bond paying $10.000 in 10 years?

Multiple Choice Questions on Bonds, Risk

1) Franklin Corporation is planning to issue new 20-year bonds. Initially, the plan was to make the bond non-callable. If the bond were made callable after 5 years with a 5% call premium, how would this affect the bond's required rate of return? a. It is impossible to say without more information. b. Because of the


Jones Corp's EBITDA last year was $385,000 (= EBIT + depreciation + amortization), its interest charges were $10,000, it had to repay $25,000 of long term debt, and it had to make a payment of $20,000 under a long term lease. The firm had no amortization charges. What was the EBITDA coverage ratio? a. 7.36 b. 7.69

GDP, Multiplier Effect, AS/AD Framework help

1. Which of the following are included in this year's GDP? Explain your answer in each case. a. Interest on an AT&T corporate bond. b. Social security payments received by a retired factory worker. c. The unpaid services of a family member in painting the family home. d. The income of a dentist. e.

Investment Strategy

Create a brief investment strategy. Set a monetary goal, it could be a million dollars or some other dollar amount. Make the investment plan by considering the income level, age, and potential career growth. Please use the following info: ? Annual income: 60K. ? Age: 35. ? Potential career growth: To own and operate severa

Price of a Bond

A bond's perpetuities are 10 percent coupon, bonds of this type currently yield 8 percent and their par value is 1,000 - what is the price of the bonds. Please show me how to compute this without the use of a financial calculator. Also can you tell me how this would change if the bonds were not a perpetuities but instead had a

PV, FV Bond concepts

PV versus FV 4. If the "discount" (or interest) rate is positive, the present value of an expected series of payments will always exceed the future value of the same series. a. True b. False The discounting is the process of finding the PV of a future cash flow and is the reciprocal, or reverse of compounding. 5.

Stocks, bonds options and futures calculation problems

1. How much will you have after 6 years if you invest $15,000 at 8% per year compounded annually? Quarterly? 2. How much you need to invest now at 8% interest rate compounded semiannually in order to have $10,000 in 5 years from now? 3. Find the present value of $12,000 due four years from now if rate of interest is 6.0% p

What is the present value of each bond?

You are the owner of 100 bonds issued by Euler, Ltd. These bonds have 8 years remaining to maturity, an annual coupon payment of $80, and a par value of $1,000. Unfortunately, Euler is on the brink of bankruptcy. The creditors, including yourself, have agreed to a postponement of the next 4 interest payments (otherwise, the ne

Cumulative Voting, Dividends, Convertible

Problem 4 is cumulative voting problem 16 is preferred stock in arrears problem 7 is stock split and stock dividend problem 16 is dividends and stockholder wealth maximization problem 19-4 price of a convertible bond See attached file for full problem description.

Cost of Debt, Cost of Equity, and WACC for Wild Widgets, Inc.

If Wild Widgets, Inc., (WWI) were an all-equity firm, it would have a beta of 0.9. WWI has a target debt-to-equity ratio of 0.50. The expected return on the market portfolio is 16%, and Treasury bills currently yield 8% per annum. WWI one-year, $1,000 par value bonds carry a 7% annual coupon and are currently selling for $972

Current yield, Capital Gain, Per Share Price

Please show how to calculate the answer for the attached problems. Consider a $1, 000 par value bond with a 7 percent annual coupon. The bond pays interest annually. There are 9 years remaining until maturity. What is the current yield on the bond assuming that the required return on the bond is 10 percent? Beck Company,

O'Meara, Inc.

O'Meara Inc plans to issue 6 million of perpetual bonds. The face value of each bond is $1,000. The semi-annual coupon on the bonds is 4.5%. Market interest rates on one-year bonds are 8%. With equal probability, the long-term market interest rate will be either 12% or 6% next year. Assume investors are risk-nuetral. a) IF

Capital Budgeting Technique

1. As of December 1999, had never paid a dividend and the market value of its stock was $37 billion. Does this invalidate the dividend discount model? Why or why not? 2. Which capital budgeting technique is consistent with maximizing shareholder wealth and why? 3. WACC is also referred to by 3 other names.

WACC caculations

A firm has a capital structure with 40% debt, 50% equity, and 10% preferred stock. If the following information is given, calculate company's WACC. YTM on firm's bond is 7.2% Beta is 1.2; risk free rate 5%; market risk premium is 5% Preferred stock pays dividend of $8 and sells for $100

Bond Pricing

A semiannual 3-year bond with the coupon of 6.5% has a YTM of 8%. Determine what price an investor should be willing to pay for this bond. (Hint: since the bond is semiannual, pay close attention to coupon payments, periods, and interest rate to be used for discounting bond cashflows; If the bond is currently trading at $935.50,

Problem Set

1. Which is the best approach to common stock valuation and why? 2. Which capital budgeting technique is consistent with maximizing shareholder wealth and why? 3. What role does depreciation play in break-even analysis based on accounting flows? Based on cash flows? Which perspective is longer term in nature? 4.

Econ question

Based on risk-return tradeoffs observable in the financial marketplace, which of the following securities would you expect to offer higher expected returns than corporate bonds? a. U.S. Government bonds b. municipal bonds c. common stock d. commercial paper e. none of the above