Example: You may invest $100,000 today. Depending on the state of the economy, you may get one of three possible cash payoffs:
Economy Slump Normal Boom
Payoff
$80,000 110,000 140,000 Expected payoff = (80,000+110,000+140,000)/3 = $110,000
The stock is tr
14. Jacks Construction Co. has 80,000 bonds outstanding that are selling at par value.
Bonds with similar characteristics are yielding 8.5%. The company also has 4 million
shares of common stock outstanding. The stock has a beta of 1.1 and sells for $40 a
Midterm Solutions
1.
You have just made a $1,500 contribution to your individual retirement account. Assume
you earn a 12 percent rate of return and make no additional contributions. How much
more will your account be worth when you retire in 25 years tha
BEF Fall 2014 - Midterm Number 2
Solutions
1) Which one of the following is a correct ranking of securities based on their volatility over the
period of 1926-2010? Rank from highest to lowest.
A. large company stocks, U.S. Treasury bills, long-term govern
Problem Set 5
1. ABC and XYZ are all-equity firms. ABC has 1,750 shares outstanding at a market price of
$20 a share. XYZ has 2,500 shares outstanding at a price of $28 a share. XYZ is acquiring ABC
for $36,000 in cash. The incremental value of the acquis
Problem Set 3
1. Suppose the XYZ Corporation's common stock has a beta of 0.8. If the risk -free rate is 4% and the expected
market return is 9%. What is the expected return for XYZ's common stock. (20 Points)
2. Jack's Construction Co. has 80,000 bonds o
Problem Set 2
1. Your parents are giving you $100 a month for four years while you are in college. At a 6% discount rate, what are
these payments worth to you when you first start college?
th
2. Today, you turn 21. Your birthday wish is that you will be a
Problem Set 2 solutions
1. Your parents are giving you $100 a month for four years while you are in college. At a 6% discount rate, what are
these payments worth to you when you first start college?
Ans:
2. Today, you turn 21. Your birthday wish is that y
Problem Set 1 Solution
1.Given the tax rates as shown, what is the average tax rate for a firm with taxable income of $126,500?
Tax = .15($50,000) + .25($25,000) + .34($25,000) + .39($126,500 - $100,000) = $32,585; Average tax
rate = $32,585 $126,500 = .2
ABC and XYZ are all-equity firms. ABC has 1,750 shares outstanding at a market price
of $20
a share. XYZ has 2,500 shares outstanding at a price of $28 a share. XYZ is acquiring
ABC for
$36,000 in cash. The incremental value of the acquisition is $3,000.
(a). Suppose a Miller equilibrium exists (V L = VU) with corporate tax rate of 30% and
personal tax rate on income from bonds of 35%. What is the personal tax rate on income
from stocks?
0 = 1-(1-0.3)(1-TS)/(1-0.35) => TS = 0.071 = 7.1%
3.
Because many re
1
THE NOMINAL EFFECTIVE EXCHANGE RATES (NEER) &
THE REAL EFFECTIVE EXCHANGE RATES (REER)
GROUP ASSIGNMENT
PROF HARVEY PONIACHEK, SPRING 2016
DUE 2/22/16, SUBMIT HARD COPY, PLSE NO LATE WORK
DERIVE THE NEER AND THE REER BY APPLYING THE FOLOWING MODELS. THI