Exam_1(Tuesday)_Answers - Exam 1 (Tuesday) - ANSWERS BADM...

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Exam 1 (Tuesday) - ANSWERS BADM 115 – Fall 2008 – Professor Isabelle Bajeux-Besnainou 1. Coupon rate 6% PMT $60 calculated N 15 I/YR 8% PV $828.81 FV $1,000.00 2. Real risk-free rate 2.50% Expected inflation 3.50% Market risk premium 5.50% Beta 1.40 Risk-free rate 6.00% Required return on stock 13.70% 3. Correct answer: “ The monthly payments will decline over time”. Monthly payments will not decline over time, they will stay the same. The percentage paid toward interest declines over time. Interest due for every payment gets progressively smaller, which means that the portion toward principal gets larger. If the interest rate is lower, less is paid toward interest. 4. Bonds $4,000 Interest rate 7% Sales $9,000 Operating costs excluding depr'n $6,000 Depreciation $1,500 Operating income (EBIT) $1,500 Interest charges -$280 Taxable income $1,220 5. N 20 I/YR 8.99% = YTM PV $1,275 PMT $120 FV $1,000 6. Correct answer: “ One advantage of forming a corporation is that equity investors are usually exposed to less liability than in a partnership”.
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This note was uploaded on 01/02/2010 for the course BADM 115 taught by Professor Bajeux during the Fall '08 term at GWU.

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Exam_1(Tuesday)_Answers - Exam 1 (Tuesday) - ANSWERS BADM...

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