Problem 4-20
Inflation Risk Premiums
Because of a recession, the inflation rate expected for the coming year is only 4%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 4%. Assume that the real risk-free rate is r* = 2% for all maturities and that there are no maturity premiums. If 3-year Treasury notes yield 2 percentage points more than 1-year notes, what inflation rate is expected after Year 1?
%
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XYZ corp is expected to pay dividends of $3.50 at the end of every year for the next 3 years. If the current price of XYZ corp is $15, and XYZ’s equity cost of capital is 20%, what price would you expect XYZ’s stock to sell for at the end of three years (immediately after the third dividend is paid)?
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At the beginning of the year, long-term debt of a firm is $304 and total debt is $337. At the end of the year, long-term debt is $267and total debt is $347. The interest paid is $33. What is the amount of the cash flow to creditors?
33
37
-70
70
-37
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What is the yield of a 3-year bond with a coupon rate of 7% and face value of $100? Assume the bond is currently trading at a price of $100, and that coupons are paid semi-annually. Assume semi-annual compounding.
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You decide to save $1,000 at the end of each year for the next 20 years. If your savings earn an annual interest rate of 2%, how much will you have saved up by the end of 20 years? Round to the nearest cent.
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At the beginning of the year, a firm has current assets of $332 and current liabilities of $236. At the end of the year, the current assets are $501 and the current liabilities are $276. What is the change in net working capital?
Multiple Choice
$129
$0
$169
–$129
$209
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In: Finance
What kinds of risks are associated with holding a 10-year Treasury note?
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An issue of common stock is selling for $57.20. The year end dividend is expected to be $2.95 assuming a constant growth rate of 7%. What is the required rate of return? (Round your answer to 1 decimal place.)
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By the end of this year you would be 35 years old and you want to plan for your retirement. You wish to retire at the age of 65 and you expect to live 20 years after retirement. Upon retirement you wish to have an annual sum of $50,000 to supplement your social security benefits. Therefore, you opened now your retirement account with 7% annual interest rate. At retirement you liquidate your account and use the funds to buy an investment grade bond which makes $50,000 annual coupon payments based on a 6 % coupon rate, throughout your retirement years.
Please calculate the monthly payment in your retirement account in order to be able to achieve the plan mentioned above?
In: Finance