QUESTION A six-year government bond makes annual coupon payments of 5% and offers a yield of3% annually compounded. Suppose that one year later the bond still yields 3%. Whatreturn has the bondholder earned over the 12-month period? Now suppose that the bondyields 2% at the end of the year. What return would the bondholder earn […]
QUESTION Calculate the price of the following bonds, where F is the face value, c is the coupon rate, N is the number of years to maturity, and i is the interest rate (or discount rate, or yield): a. F = $1,000, c = 8%, N = 3, i = 3% b. F = $5,000, […]
QUESTION Risk Premiums Refer to Table 10.1 in the text and look at the period from 1973 through 1978. 1. Calculate the arithmetic average returns for large-company stocks and T-bills over this period. 2. Calculate the standard deviation of the returns for large-company stocks and T-bills over this period. 3. Calculate the observed risk premium […]
QUESTION CathFoods will release a new range of candies which contain antioxidants. New equipment to manufacture the candy will cost $2 million, which will be depreciated by straight-line depreciation over five years. In addition, there will be $5 million spent on promoting the new candy line, which will be listed as an expense on the […]
QUESTION Consider a bond with a 10% coupon and with yield to maturity 8%. If the bonds yield to maturity remains constant, then in one year, will the bond price be higher, lower, or unchanged? Why? The price of the bond initially is more than the face value as the YTM is less than the […]
QUESTION Hudson Corporation needs a machine that costs $60,000 and is expected to run for 5 years. Hudson will depreciate it completely in 4 years on a straight-line basis. The tax rate of the company is 33%, and the proper discount rate is 13%. Find the minimum annual earnings before taxes that this machine should […]
QUESTION Which one of the following would provide evidence against the semi strong form of the efficient market theory? a. About 50% of pension funds outperform the market in any year. b. All investors have learned to exploit signals about future performance. c. Trend analysis is worthless in determining stock prices. d. Low P/E stocks […]
QUESTION What do you think would happen to the expected return on stocks if investors perceived higher volatility in the equity market? Relate your answer to equation 7.5. Volatility measures the dispersion of a stock from its mean or from its expected return. Now the best way to measure a stock volatility is through the […]
QUESTION The trade-off theory relies on the threat of financial distress. But why should a public corporation ever have to land in financial distress? According to the theory, the firm should operate at the top of the course market movements or business setbacks could bump it up to a higher debt ratio and put it […]
QUESTION In 2008 Pfizer had 12,000 million shares of common stock authorized, 8,863 million in issue, and 6,746 million outstanding (figures rounded to the nearest million). Its equity account was as follows: Common stock $443 Additional paid-in capital 70,283 ANSWER: CLICK REQUEST FOR AN EXPERT SOLUTION
