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Bonds

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

Depriciation and Financial Accounting

A) The balance sheet of the first chemical plant is given in the attached file. If annual sale is $400,000, profit before income tax is $200,000, and the corporate tax rate is 50%, compute the return-on-total-assets ratio and the inventory-turnover ratio. b) Define the inventory-turnover ratio and identify its two major inc

GDP

Problem caculate the total change in a year's GDP: General Electric uses $10 million worth of steel,glass, and plastic to produce dishwashers. Wages and salaries in the dishwasher division are $40 million: the divisions only other expense is $15 million in interest that it pays on its bonds. The divsion revenue for the year i

Bond's Value

EFGH corporation has a coupon bond outstanding with a 10% coupon rate (interest is payable annually). The bond has 10 years to maturity and a face value of $1000; similar bonds currently yield 7%. By prior agreement, EFGH will skip the coupon payments in years 4, 5 and 6. These payments will be repaid without interest, at maturi

Price of Bond - Replicating Portfolio Using Zero Coupon Bonds

(a) What is the price of a 15% coupon bond with par value of $120 if it matures in 4 years from now and pays the coupon semi-annually? Assume that the annual percentage rate is 11%. (b) If we think of the cash flows from this bond as a portfolio of zero coupon bonds that mature every six months, then it is possible to constr

Economic Reasonings Questioning

1. Should any government body; local, state, or federal, be involved in setting prices? Why or Why Not? Formulate your answer as if you were responding to this question by someone who is not familiar with economics. 2. Put yourself in the position of a wheat farmer in the United States. What type activity would you lik

Problems

Please show calculations and walk through the process to obtain a solution. 1} A 10-year Corporate bond is issued with a face value of $100,000, paying interest of $2,500 semi-annually. If market yields decrease shortly after the T-bond is issued, what happens to the bond's: a. price?

4 problems

1. Ginko Inc. has bonds outstanding that mature in 20 years. The bonds have $1000 par value, pay interest annually at a rate of 10 percent, and have a current selling price of $875.25. What is the yield to maturity? 2. A share of common stock just paid a dividend of $3.25 per share. The expected long-run growth rate for th

Federal Reserve problem

As a member of the Federal Reserve you are speaking with a group of newly elected members of Congress to explain your operations. The members of Congress have asked you to address the following issues. The Federal Reserve has traditionally conducted open market operations through the purchase and sale of government bonds. I

Multiple choice

MULTIPLE CHOICE: 1. Money functions as: a. store of value b. unit of account c. medium of exchange d. all of the above 2. In the United States the M1 money supply is comprised of: a. coins, paper currency, and checkable deposits. b. currency, checkable deposits, and government bonds. c. coins, paper currency, checka

Capital or not

1) Which of the following are capital and which are not. Explain a) video poker game machine at a local bar that takes quarters. b) a $10 bill c) A college education d) The Golden Gate Bridge. e) The shirts on the rack at Sears. f) A government bond. g) The Empire State Buliding. h) A savings account

As a member of the Federal Reserve you are speaking with a group of newly elected members of Congress to explain your operations. The members of Congress have asked you to address the following issues.

As a member of the Federal Reserve you are speaking with a group of newly elected members of Congress to explain your operations. The members of Congress have asked you to address the following issues. The Federal Reserve has traditionally conducted open market operations through the purchase and sale of government bonds. In

Yield on a Treasury bond

The market expects that inflation will be 3% percent each year for the next 5 years and then the following years will average 5% percent a year. The maturity risk premium is estimated to be MRPt = 0.1(t - 1)%. Maturity risk premium on a two year security is 0.1 percent or 0.001. Real risk-free rate of interest is 3%. W

Foreign investment

What happens when a country such as Japan dumps American Bonds? What happens to the exchange rate? What happens to the money supply? What happens to the bond prices and yields/interest rates? thanks!

Description of The Federal Reserve

In principle could the Federal Reserve conduct monetary policy through the purchase and sale of stocks on the New York Stock Exchange? Do you see any possible drawbacks to such a policy. Suppose the Federal Reserve purchased gold or foreign currency. How would this purchase affect the domestic money supply?

Fed Funds rate, 10 Year T-bill, Mortgage Rate relationship

What is the relationship between the Fed funds rate, the 10 year (US) T-bill and the Mortgage rate? If the fed funds rate goes up, what exactly is affected? I know it's very short term investments, but what exactly? is it credit card rates? (examples please) Then, what is expected to happen to the 10 Year T-bill? Why?

Contemporary Economics

Contemporary Economics 1. Tuition at Matchbook Cover Tech was $9,000 per semester and enrollment was 5,500 in 1995. By 2005, tuition had fallen to $6,000 and enrollment to 2,800. Does this mean that the demand curve for education at Matchbook Cover Tech is positively sloped with regard to price (i.e., that the own price c

Three motives for holding money

What are the three motives for holding money? Explain these motives by writing brief scenarios involving personal own behavior illustrating each motive. Also depict these motives using a graph.

Federal Reserve question

As a member of the Federal Reserve you are speaking with a group of newly elected members of Congress to explain your operations. The members of Congress have asked you to address the following issues. The Federal Reserve has traditionally conducted open market operations through the purchase and sale of government bonds. In

Principles of microeconomics

As amember of the federal reserve you are speaking with a group of newly elected members of congress to explain your operations.The members of congress have asked you to address the following issues . The Federal reserve has traditionally conducted open market operations through the purchase and sale of government bonds.In prin

Return on bonds

1. What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $900 next year? 2. If a $12,000 coupon bond has a coupon rate of 8 percent, then the coupon payment every year is 3. The current yield on a $5,000, 8 percent coupon bond selling for $4,000 is

Intro to Economics

As a member of the Federal Reserve you are speaking with a group of newly elected memners of congress to explain your operations. The members of Congress have asked you to address the following issues. The Federal Reserve has traditionally conducted open market operations through the purchase and sale of government bonds. I

Basic Macroeconomics question

In the context of a closed economy IS-LM model; (a) Under what circumstances would the following have no effect of the level of output? i. An increase in government spending. ii. An open market purchase of bonds, from the public. (b) Under what circumstances would the following have no effect on the rate of interes

Foreign Exchange

Consider a 1-year riskless Canadian bond and a 1-year riskless Japanese bonds. The interest rates on the Canadian bond and the Japanese bond are denoted by iCADt and iYent, respectively. The current spot rate is EYen/CADt, and the forward rate is FYen/CADt. The investors' expected spot rate in 1 year is Ee Yen/CADt+1. Assume t

Portfolio Risk, Return and Standard Deviation

See the attached file. Question 1: a) Is it possible to increase return and decrease risk of a portfolio at the same time? b) Why do investors buy common stocks instead of investing all their money in bonds and t bills. Question 2: Use the attached table table to answer - A) If the investor allocates 30% of his mo

Corporate Finance: WACC, Beta, cost of equity using CAPM

Question 1: The AI corporation has a $150 M worth of common stock on which investors require a 17% rate of return. It also has $35 M in bonds that offer a 7% return. a) Compute the WACC assuming that AI is subject to a 40% tax rate. b) Re-compute the WACC assuming that the firm has $85 M in debt and $100 M in stock. c

Corporate Finance: Discount Rate; IRR; NPV

Question 1 A company is considering a project that produces the attached cash flows. Assume that the appropriate discount rate for this project is 8%. a) Compute the IRR of this project. b) Compute the NPV of this project. c) To select a project would you use IRR or NPV? Explain. d) What is the economic interpre

Issue price of bonds and journal entries

Minimus sold a 100,000 9% 3 year bond issue due on march 31 year 1 at a price yield to investors 10%. Interest rates are per annum compounded semi-annually. The bond interest is payable each september 30 and march 31, with the first payment due september 30 year 1. Premium or discount is amortized by straight line method. Ye