1. Assume that the expectations theory holds, and that liquidity and maturity risk premiums are zero. If the annual rate of interest on a 2-year Treasury bond is 11.5 percent and the rate on a 1-year Treasury bond is 13.5 percent, what rate of interest should you expect on a 1-year Treasury bond one year from now? Calculate your answer using the geometric average. State your answer as a percentage to 2 decimal places (i.e. xx.xx)

5 points   

QUESTION 94

1. Your grandparents deposited $5,570 for you when you were born 18 years ago. Today, the account (to which no other deposits have been made) is worth $206,637. What annually compounded rate of return has the account earned? State your answer as a percentage to 2 decimal places (i.e. xx.xx)

Omni Telecom is trying to decide whether to increase its cash dividend immediately or use the funds to increase its future growth rate.

P0 = D1 Ke − g P0 = Price of the stock today

D1 = Dividend at the end of the first year

D1 = D0 × (1 + g) D0 = Dividend today

Ke = Required rate of return

g = Constant growth rate in dividends

D0 is currently $2.00, Ke is 10 percent, and g is 4 percent.

Under Plan A, D0 would be immediately increased to $2.50 and Ke and g will remain unchanged.

Under Plan B, D0 will remain at $2.00 but g will go up to 5 percent and Ke will remain unchanged.

a. Compute P0 (price of the stock today) under Plan A. Note D1 will be equal to D0 × (1 + g) or $2.50 (1.04). Ke will equal 10 percent, and g will equal 4 percent. (Round your intermediate calculations and final answer to 2 decimal places.)

b. Compute P0 (price of the stock today) under Plan B. Note D1 will be equal to D0 × (1 + g) or $2.00 (1.05). Ke will be equal to 10 percent, and g will be equal to 5 percent. (Round your intermediate calculations and final answer to 2 decimal places.)

c. Which plan will produce the higher value?

. Using the information below, find the expected return and beta of the portfolio.

Education: Assume people live 2 years: youth (year 1) and adult (year 2). Youths either go to school or work. If they go to school, they earn zero. If they work they earn $1000. As adults, everyone works. An educated adult earns $3000 while an uneducated adult earns $1800. The interest rate is 12% and the government pays the full cost of schooling at $350 per year.   

Earnings

Earnings: Year 1 Year 2

A. Earnings profile: no school $1000 $1800

B. Earnings profile: with school 0 $3000

C. Earnings gain from schooling -$1000 +$1200

Therefore, calculate the present discounted value of the benefits of schooling and the rate of return for both the individual and society.

Net Private Benefit?

Private Rate of Return?

Net Social Benefit?

Social Rate of Return?

It is late June, and Sandra, head of operations at Mintendo, and Bill, head of sales of We “R” Toys, are about to get together to discuss production and marketing plans for the next six months.  Mintendo is the manufacturer of the popular Game Girl hand-held electronic game that is sold exclusively through We “R” Toys retail stores.  The second half of the year is critical to Game Girl’s success, because a majority of its sales occur during the holiday shopping period.

Sandra is worried about the impact that the upcoming holiday surge in demand will have on her production line.  Costs to subcontract assembly of the Game Girls are expected to increase, and she has been trying to keep costs down given that her bonus depends on the level of production costs.

Bill is worried about competing toy stores gaining share during the Christmas buying season.  He has seen many companies lose their share by failing to keep prices in line with the performance of their products.  He would like to maximize the Game Girl market share.

Both Sandra and Bill’s teams produce the following joint forecast of demand for the next six months:

We “R” Toys sells Game Girls for $50 apiece.  At the end of June, the company has an inventory of 50,000 Game Girls.  Capacity of the production facility is set purely by the number of workers assembling the Game Girls.  At the end of June, the company has a workforce of 299 employees, each of whom works eight hours of regular time (non-overtime) at $15/hour for 20 days each month.  Work rules require that no employee work more than 40 hours of overtime per month.  The various costs are shown below:

Sandra, concerned about controlling costs during the periods of surging demand over the holidays, proposes to Bill that the price be lowered by $5 for the month of September.  This would likely increase September’s demand by 50 percent due to new customers being attracted to Game Girl.  Additionally, 30 percent of each of the following two months of demand would occur in September as forward buys.  She believes strongly that this leveling of demand will help the company.

Bill counters with the idea of offering the same promotion in November, during the heart of the buying season.  In this case, the promotion increases November’s demand by 50 percent due to new customers being attracted to Game Girl.  Additionally, 30 percent of December’s demand would occur in November as forward buying. Bill wants to increase revenue and sees no better way to do this than to offer a promotion during the peak season.

Question: Which option delivers the maximum profit for the supply chain:  Sandra’s plan, Bill’s plan, or no promotion plan at all? An Excel file of the S&OP model supporting your conclusion must be submitted to the drop box.

Malik David purchased 100 shares of the Canadian Textile Fund at CAD 25 at the beginning of the year and was subject to a front-end load of 4.5%. The net asset value of the fund increased by 11% during the year while the fund's expense ratio was 1.2%. The annual return earned by David if he sells at year's end is closest to:

Group of answer choices

4.50%.

4.86%.

5.30%.

9.82%.

Due to a recession, expected inflation this year is only 3.25%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 3.25%. Assume that the expectations theory holds and the real risk-free rate (r*) is 2.5%. If the yield on 3-year Treasury bonds equals the 1-year yield plus 0.5%, what inflation rate is expected after Year 1? Round your answer to two decimal places.

I keep getting the wrong answer! Not sure of what I am doing wrong

Commonwealth Construction (CC) needs $1 million of assets to get started, and it expects to have a basic earning power ratio of 10%. CC will own no securities, all of its income will be operating income. If it so chooses, CC can finance up to 35% of its assets with debt, which will have a 7% interest rate. If it chooses to use debt, the firm will finance using only debt and common equity, so no preferred stock will be used. Assuming a 25% tax rate on taxable income, what is the difference between CC's expected ROE if it finances these assets with 35% debt versus its expected ROE if it finances these assets entirely with common stock? Round your answer to two decimal places.

Assume you have invested $55,000 in the stock of ABC Industries and $20,000 in the stock of Southern Enterprises. Their prospective returns are listed below:

1. Determine the expected return for ABC Industries and Southern Enterprises.
2. Determine the expected return of the portfolio.
3. Determine the standard deviation of the portfolio.
4. In general, what is the correlation of the two stocks (i.e, positive or negative)? What is their general correlation with the state of the economy?

A recent edition of The Wall Street Journal reported interest rates of 3.10 percent, 3.45 percent, 3.76 percent, and 3.02 percent for three-year, four-year, five-year, and six-year Treasury notes, respectively. According to the unbiased expectations theory of the term structure of interest rates, what are the expected one-year rates during years 4, 5, and 6?

Why do we use the overall cost of capital for investment decisions even when only one source of capital will be used (e.g., debt)? Suppose a firm estimates its weighted average cost of capital (WACC) to be 10%. Should the WACC be used to evaluate all of its potential projects, even if they vary in risk? If not, what might be “reasonable” costs of capital for average, high and low-risk projects?

(150 words at least)

#23 ch.7: semi-annual bond ; coupon = 7.2; matures=14 yrs; Last Price=108.96What is YTM, CY and effective Yield.