1. Tom has $300,000 to invest. He invests his money into four stocks with the following betas:

Stock A= $120,000 Beta: 2.15

Stock B= $75,000 Beta: 0.40

Stock C= $50,000 Beta: 0.85

Stock D= $55,000 Beta: 0.66

The risk-free rate is 4%, and the expected market return is 9% Compute the required rate of return on the portfolio.

1. RRR Co. just paid a dividend of $1.15 per share. The dividend is expected to grow by 40% next year, 20% in both Years 2 & 3, 10% in Year 4, and then grow at a constant rate of 4% thereafter. The required rate of return is 8.5%. Compute the selling price of the stock.

Answer as most as possible I want to understand it all

1. Union Local School District has bonds outstanding with a coupon rate of 4.2 percent paid semiannually and 17 years to maturity. The yield to maturity on these bonds is 3.5 percent and the bonds have a par value of $5,000.

-What is the dollar price of each bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

2.  Fluss AB has 9.5 per cent coupon bonds making annual payments with a YTM of 7.1 per cent. The current yield on these bonds is 7.5 per cent. The par value of the bond is €1,000.
How many years do these bonds have left until they mature?

3.Laurel, Inc., and Hardy Corp. both have 7 percent coupon bonds outstanding, with semiannual interest payments, and both are priced at par value. The Laurel, Inc., bond has four years to maturity, whereas the Hardy Corp. bond has 15 years to maturity.

a. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds?

b.  If interest rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of these bonds be then?

4. Stand AG has bonds on the market with 17.5 years to maturity, a YTM of 6 per cent, and a current price of €930. The bonds make semiannual payments. The par value of the bond is €1,000.

-What must the coupon rate be on these bonds?

Problem 1 (Hedging)

A US exporter expects to receive £1 million in 2 months for her exports to the UK. The current exchange rate is US$2.30/£. She is worried that the pound might depreciate over the next 2 months and wants protection against its decline but she also want to benefit from a possible rise in £ over the next 2 months. Put options and call options on the £, with 2-month maturity are available.

1. What should she do?

2. Suppose the 2-month put options exercisable at US$2.50/£ are trading at US$0.01. What would be her cash revenue, given your answer in part a), if at the 2 month end the spot exchange rate turns out to be

   1. US$2.00/£

   2. US$3.00/£

3. What would be her minimum cash revenue, no matter what the spot rate at the end of 2 months turn out to be?

4. What would be the upfront cost (fee) for undertaking the appropriate options contract?

5. What would she do if the expected £1 million at the 2-month end are not received and what would be her loss if that happens?

The stock price of a company is currently $75 per share. A call option on the company’s stock has an exercise price of $80 and six months to expiration. The continuous riskfree rate is 5% per year and the stock's volatility is 28% per year.

A.) Use the Black-Scholes formula to find the value of the call option.

B.) Calculate the hedge ratio for the call option.

1. A 10-year steel pipe-producing project requires $66 million in upfront investment (all in depreciable assets), $20.40 million of which is borrowed capital at an interest rate of 6.28% per year. The expected pipe sales are 1,800,000 pipes per year. The expected price per pipe is $64 and the variable cost is $24 per widget. The fixed costs excluding depreciation are expected to be $14 million per year for ten years. The upfront investment will be depreciated on a straight line basis for the 10-year useful life of the project to $6 million book value. The expected salvage value of the assets is $14 million. The tax rate is 25% and the WACC applicable to the project is 14%.
   1. Calculate the accounting Break-even point.
   2. Calculate the DOL, DFL, and DCL (Do your own change in sales).
   3. Calculate the NPV breakeven annual cash flow for the project.
   4. Calculate the NPV break-even point

Company A deposit $10,000 now in the bank. Company A will keep deposits $1500 at the end of each payment period. The interest rate and the payment period information are given in the following table.How much will the company have after 5 years in the bank account? Assume each year contains 52 weeks/365 days, each quarter contains 13 weeks/90 days, each month contains 4 weeks/30 days.

Yield to maturity and yield to call

Kaufman Enterprises has bonds outstanding with a $1,000 face value and 10 years left until maturity. They have an 12% annual coupon payment, and their current price is $1,175. The bonds may be called in 5 years at 109% of face value (Call price = $1,090).

1. What is the yield to maturity? Round your answer to two decimal places.
   %
   
2. What is the yield to call if they are called in 5 years? Round your answer to two decimal places.
   %
   
3. Which yield might investors expect to earn on these bonds? Why?
   
   1. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM.
   2. Investors would expect the bonds to be called and to earn the YTC because the YTM is less than the YTC.
   3. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM.
   4. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC.
   5. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC.
   
   -Select-IIIIIIIVV
   
4. The bond's indenture indicates that the call provision gives the firm the right to call the bonds at the end of each year beginning in Year 5. In Year 5, the bonds may be called at 109% of face value; but in each of the next 4 years, the call percentage will decline by 1%. Thus, in Year 6, they may be called at 108% of face value; in Year 7, they may be called at 107% of face value; and so forth. If the yield curve is horizontal and interest rates remain at their current level, when is the latest that investors might expect the firm to call the bonds?
   
   In Year -Select-56789 .

3. Interest rate parity: The annual, riskless, nominal interest rate in the Eurozone is [– 0.5%]. The spot rate between the euro (EUR) and the dollar (USD) is USD 1.1074 / EUR and the 90-day forward rate between the euro and the dollar is USD 1.0930 / EUR.

a) What is the annual, riskless, nominal interest rate in the US if interest rate parity holds?

b) What happens if interest rate parity is violated? Explain. (7 points) a) Calculate annual, riskless, nominal interest rate in US: b) Answer the question here:

The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $120,000 and the asset will provide the following stream of earnings before depreciation and taxes for the next four years: Use Table 12-12. Year 1 $ 54,000 Year 2 66,000 Year 3 38,000 Year 4 29,000 The firm is in a 35 percent tax bracket and has a cost of capital of 12 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Calculate the net present value. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.)

you are saving for retirement. starting this month you will deposit $600 per month into a stock account that earns 9% interest, compounded monthly. In ten years, you will inhereit 100000 which you will also put in the same account. a) If you plan to retire in 37 years, how much will you have when you retire?

thank you.

Problem 16-07
Cost of Trade Credit

Calculate the nominal annual cost of nonfree trade credit under each of the following terms. Assume that payment is made either on the due date or on the discount date. Assume 365 days in year for your calculations. Do not round intermediate calculations.

1. 1/15, net 25. Round your answer to two decimal places.
   %
   
2. 2/10, net 55. Round your answer to two decimal places.
   %
   
3. 3/10, net 55. Round your answer to two decimal places.
   %
   
4. 2/10, net 50. Round your answer to two decimal places.
   %
   
5. 2/15, net 40. Round your answer to two decimal places.
   %

Problem 16-05
Accounts Payable

A chain of appliance stores, APP Corporation, purchases inventory with a net price of $700,000 each day. The company purchases the inventory under the credit terms of 2/15, net 30. APP always takes the discount, but takes the full 15 days to pay its bills. What is the average accounts payable for APP? Round your answer to the nearest dollar.

$  

Problem 16-06
Receivables Investment

Snider Industries sells on terms of 3/10, net 45. Total sales for the year are $820,000. Thirty percent of customers pay on the 10th day and take discounts; the other 70% pay, on average, 50 days after their purchases. Assume 365 days in year for your calculations.

1. What is the days sales outstanding? Round your answer to one decimal place.
   days
   
2. What is the average amount of receivables? Round your answer to the nearest dollar. Do not round intermediate calculations.
   $  
   
3. What would happen to average receivables if Snider toughened its collection policy with the result that all nondiscount customers paid on the 45th day? Round your answer to the nearest dollar. Do not round intermediate calculations.
   $