Risk Modeling Final Exam The solutions to this exam will be hand-written, scanned and sent to the e-mail address: email@example.com The deadline is Monday, January 10, 2010 1. Consider a futures contract to purchase a coupon-bearing bond whose current price is $875. The...
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Howard Contracting recently completed a 3-for-1 stock split. Prior to the split, its stock price was $150 per share. The firm's total market value was unchanged by the split. What was the price of the company s stock following the stock split? (Points: 4) $ 50.00 $...
Nistelroy Communications recently completed a 3-for-1 stock split. Prior to the split, its stock price was $120 per share. The firm's total market value increased by 5% as a result of the split. What was the price of the company s stock following the stock split? (Points: 4)...
Young Enterprises has $2 million in assets, $400,000 of EBIT, and has a 40% tax rate. The firm also has a debt-to-assets ratio of 50% and pays 12% interest on its debt. What is Young's ROE? (Points: 4) 16.80% 17.10% 17.40% 17.70% 18.00%
Consider a coupon bond that has a $1000 par value and a coupon rate of 10%. The bond is currently selling for $1150 and has eight years to maturity. What is the bond's yield to maturity?
Making Norwich Tools Lathe Investment Decision. Norwich Tool, a large machine shop, is considering replacing one of its lathes with either of two new lathes lathe A or lathe B. Lathe A is a highly automated, computer-controlled lathe; lathe B is a less expensive lathe that uses standard...
American Express (AMEX) bonds have a coupon of 6%, pay interest semiannually, have a face value of $1,000 and will mature after 8 years. Your income-tax rate for interest income is 35%, but only 15% on capital gains. You pay the taxes once a year. How much should you pay for an AMEX bond if your...
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1. Can you help me with this valuation problem?: Imagine that you are trying to evaluate the economics of purchasing an automobile. You expect the car to provide annual after-tax cash benefits of $1,200 at the end of each year and assume that you can sell the car for after-tax proceeds of $5,000 at the end of the planned 5-year ownership period. All funds for purchasing the car will be drawn from your savings, which are currently earning 6% after taxes.
- a.Identify the cash flows, their timing, and the required return applicable to valuing the car.
- b.What is the maximum price you would be willing to pay to acquire the car? Explain.
2. How do you calculate the before tax-cost of the Sony bond and the after-tax cost of the Sony bond given the following information?:
- David Abbot is interested in purchasing a bond issued by Sony. He has obtained the following information on the security:
- Sony bond
- Par value $1,000 Coupon interest rate 6% Tax bracket 20%
- Cost $930 Years to maturity 10