All Matches

Solution Library

Expert Answer

Textbooks

Search Textbook questions, tutors and Books

Oops, something went wrong!

Change your search query and then try again

Result Not Found

Books FREE
Tutors
Study Help
Hire a Tutor
AI Study Help New

Search
Sign In
Register

study help
business
fundamentals of corporate finance

Questions and Answers of Fundamentals Of Corporate Finance

d. What is its value after n years?
c. Now suppose that interest is paid continuously throughout the year. What is the value of an investment of $1 at the end of the year if the annually compounded interest rate is r?
b. What is its value after n years?
a. Suppose you invest $1 in an investment that pays interest m times a year. If the quoted interest rate is r per year, what is the value of your investment at the end of 1 year?
a. At the end of the next year, General Supplies is expected to pay a dividend of $4 a share. You expect the dividend to grow thereafter by 4% a year in perpetuity. If investors demand a return of 8%
b. How much of the first monthly payment is interest and how much is amortization?
a. What will be the monthly payment if you take out a $240,000 20-year mortgage at an interest rate of 1% per month?
b. Now you realize that the tree will not start to bear fruit until the end of year 3. How does this change your calculation of the tree’s value?
a. You have planted a money tree that is expected to produce $8,000 at the end of each year in perpetuity starting one year from now. If the interest rate is 7%, what is the present value of the
c. If the interest rate is 8%, what is the three-year discount factor?
b. If the two-year discount factor is 0.90, what is the present value of $200 received in year 2?
a. If the one-year discount factor is 0.95, what is the present value of $100 received in year 1?
c. If she keeps her money invested for an additional sixth year, how much interest will she earn in that final year?
b. If she continues to keep her money invested, how much will her investment be worth at the end of five years?
a. Janet Shih invests $3,200 at a compound interest rate of 8%. How much interest will she earn in the first year?
b. Suppose Casper is given an opportunity to invest up to $200,000 at 10% risk-free. The interest rate stays at 8%. What should he do, and how much can he consume in each period?
a. How much should he invest, and how much can he consume in each period?
2. Maximizing shareholder value Answer this question by drawing graphs like Figure 1A.1.Casper Milktoast has $200,000 on hand to support consumption in periods 0 (now) and 1(next year). He wants to
1A.1. Suppose the interest rate is 20%. What would the young girl (Y) and old man (O) do if they both start with $100,000? Would they invest in their friend’s business? Would they borrow or lend?
1. Maximizing shareholder value Look back to the numerical example graphed in Figure
10. Agency issues (S1.2) Many firms have devised defenses that make it more difficult or costly for other firms to take them over. How might such defenses affect the firm’s agency problems?Are
9. Agency issues (S1.2) Why might one expect managers to act in shareholders’ interests? Give some reasons.
8. Opportunity cost of capital (S1.2) F&H Corp. continues to invest heavily in a declining industry. Here is an excerpt from a recent speech by F&H’s CFO:We at F&H have of course noted the
7. Maximizing shareholder value (S1.2) Ms. Espinoza is retired and depends on her investments for her income. Mr. Liu is a young executive who wants to save for the future. Both are shareholders in
6. Corporate goals (S1.2) We can imagine the financial manager doing several things on behalf of the firm’s shareholders. For example, the manager might:a. Make shareholders as wealthy as possible
5. Separation of ownership (S1.1) In most large corporations, ownership and management are separated. What are the main implications of this separation?
4. Corporations (S1.1) Which of the following statements always apply to corporations?a. Unlimited liability.b. Limited life.c. Ownership can be transferred without affecting operations.d. Managers
3. Investment and financing decisions (S1.1) Vocabulary test. Explain the differences between:a. Real and financial assets.b. Capital expenditure and financing decisions.c. Closely held and public
2. Investment and financing decisions (S1.1) Which of the following are real assets, and which are financial?a. A share of stock.b. A personal IOU.c. A trademark.d. A factory.e. Undeveloped land.f.
1. Investment and financing decisions (S1.1) Read the following passage: “Companies usually buy (a) assets. These include both tangible assets such as (b) and intangible assets such as (c).To pay
• Investment decisions involve a trade-off. The firm can either invest cash or return it to shareholders, for example, as an extra dividend. When the firm invests cash rather than paying it out,
• Maximizing shareholder wealth does not imply ignoring the interests of other stakeholders.Successful companies consider the welfare of customers, suppliers, employees, and local
• The shareholders who own the corporation want its managers to maximize its overall value and the current price of its shares. The stockholders can all agree on the goal of value maximization, so
• Corporations face two principal financial decisions. First, what investments should the corporation make? Second, how should it pay for the investments? The first decision is the investment
• Should managers maximize shareholder wealth or social value? Companies do invest in their stakeholders, contrary to common belief. Chapter 20 discusses more fully whether the objective of
• How do we ensure that managers act in shareholders’ interest? Various governance mechanisms exist to ensure that managers maximize shareholder value rather than their own pay or private
• Debt or equity? Does it matter? Not in a world of perfect financial markets. But in the real world, the choice between debt and equity does matter for many possible reasons, including taxes, the
• How does the company’s payout policy affect shareholder wealth? This involves answers to two questions. First, how much cash should the corporation pay out to its shareholders?Second, should
• How do companies issue new debt or equity Financing for young companies may be provided by venture capitalists, but larger, more mature companies typically make public issues of securities. In
• Where does financing come from? Broadly speaking, from borrowing or from cash invested or reinvested by stockholders. But financing can get complicated when you get down to specifics. Chapter 13
• How does risk affect the opportunity cost of capital? Here we need a theory of risk and return in financial markets. The most widely used theory is the capital asset pricing model (Chapters 8 and
• How do we measure risk? We look to the risks borne by shareholders, recognizing that investors can dilute or eliminate some risks by holding diversified portfolios (Chapter 7).
• How does the financial manager judge whether cash-flow forecasts are realistic? As Niels Bohr, the 1922 Nobel Laureate in Physics, observed, “Prediction is difficult, especially if it’s about
• What are the cash flows? The future cash flows from an investment project should be the sum of all cash inflows and outflows caused by the decision to invest. Cash flows are calculated after
• What determines value in financial markets? We cover valuation of bonds and common stocks in Chapters 3 and 4. We will return to valuation principles again and again in later chapters. Sometimes
• Is a higher rate of return on investment always better? Not always, for two reasons. First, a lower-but-safer return can be better than a higher-but-riskier return. Second, an investment with a
• How do I calculate the rate of return? The rate of return is calculated from the cash inflows and outflows generated by the investment project (Chapters 2 and 5).
b. Two pharmaceuticals companies are developing a cure for cancer. Company A has been successful in drug development in the past and earned a 25% rate of return on its past investments. Company B has
a. Epsilon is taking out a low-interest-rate bank loan to finance construction of a number of stores in South Carolina. Upsilon is making a similar-risk investment in North Carolina, which it is
A company is bankrupt and has outstanding debt of $100 million. Its assets can be liquidated for $80 million.a. How much will creditors receive?b. How much will shareholders receive?c. How much extra
Are the following decisions investment or financing decisions?a. Redesigning your products’ packaging to use less plastic.b. Launching a program to improve employee mental health.c. Lending to your
Are the following assets tangible, intangible, or financial?a. Unsold goods on your store shelves.b. Your company’s reputation for customer service.c. The negotiation skills of your company’s
You are an intern with Ford Motor Company in its corporate finance division. The firm is planning to issue $50 million of 12% annual coupon bonds with a 10-year maturity. The firm anticipates an
30. A BBB-rated corporate bond has a yield to maturity of 8.2%. A U.S. Treasury security has a yield to maturity of 6.5%. These yields are quoted as APRs with semiannual compounding. Both bonds pay
28. Your firm has a credit rating of A. You notice that the credit spread for five-year maturity A debt is 85 basis points (0.85%). Your firm’s five-year debt has a coupon rate of 6%. You see that
27. Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 7%(annual coupon payments) and a face value of $1000. Andrew believes it can get a rating of A from Standard &
25. Suppose you purchase a 30-year, zero-coupon bond with a yield to maturity of 6%.You hold the bond for five years before selling it.a. If the bond’s yield to maturity is 6% when you sell it,
24. Which of the bonds A–D is most sensitive to a 1% drop in interest rates from 6% to 5%and why? Which bond is least sensitive? Provide an intuition explanation for your answer.
23. What is the percentage change in the price of each bond if its yield to maturity falls from 6% to 5%?
22. Suppose you purchase a 10-year bond with 6% annual coupons. You hold the bond for four years, and sell it immediately after receiving the fourth coupon. If the bond’s yield to maturity was 5%
21. Your company currently has $1000 par, 6% coupon bonds with 10 years to maturity and a price of $1078. If you want to issue new 10-year coupon bonds at par, what coupon rate do you need to set?
20. Assuming the yield to maturity remains constant, what is the price of the bond immediately after it makes its first coupon payment?
19. Assuming the yield to maturity remains constant, what is the price of the bond immediately before it makes its first coupon payment?
18. What was the price of this bond when it was issued?
17. Suppose a seven-year, $1000 bond with an 8% coupon rate and semiannual coupons is trading with a yield to maturity of 6.75%.a. Is this bond currently trading at a discount, at par, or at a
16. You have purchased a 10% coupon bond for $1040. What will happen to the bond’s price if market interest rates rise?
14. Assume that the six-month Treasury spot rate is 1.6% APR, and the one-year rate is 2% APR, both compounded semiannually. What is the price of a one-year $1000 par Treasury bond with 2% coupons?
13. Suppose a five-year, $1000 bond with annual coupons has a price of $900 and a yield to maturity of 6%. What is the bond’s coupon rate?
11. Assume the current Treasury yield curve shows that the spot rates for six months, one year, and 1½ years are 1%, 1.1%, and 1.3%, all quoted as semiannually compounded APRs. What is the price of
10. The yield to maturity of a $1000 bond with a 7% coupon rate, semiannual coupons, and two years to maturity is 7.6% APR, compounded semiannually. What must its price be?
9. For each of the following pairs of Treasury securities (each with $1000 par value), identify which will have the higher price:a. A three-year zero-coupon bond or a five-year zero coupon bond?b. A
8. In the Global Financial Crisis box in Section 6.2, Bloomberg.com reported that the three-month Treasury bill sold for $100.002556 per $100 face value. What is the yield to maturity of this bond,
7. What is the risk-free interest rate for a five-year maturity?
6. What is the price per $100 face value of a four-year, zero-coupon, risk-free bond?
5. What is the price per $100 face value of a two-year, zero-coupon, risk-free bond?
3. Your company wants to raise $10 million by issuing 20-year zero-coupon bonds. If the yield to maturity on the bonds will be 6% (annually compounded APR), what total principal amount of bonds must
1. Consider a 10-year bond with a face value of $1000 that has a coupon rate of 5.5%, with semiannual payments.a. What is the coupon payment for this bond?b. Draw the cash flows for the bond on a
8. Explain why the expected return of a corporate bond does not equal its yield to maturity.
7. Why are longer-term bonds more sensitive to changes in interest rates than shorterterm bonds?
6. Explain the relationship between interest rates and bond prices.
5. Explain why the yield of a bond that trades at a discount exceeds the bond’s coupon rate.
4. Does a bond’s yield to maturity determine its price or does the price determine the yield to maturity?
3. How is yield to maturity related to the concept of rate of return?
2. How does an investor receive a return from buying a bond?
1. How is a bond like a loan?
41. You have invested in a business that proudly reports that it is profitable. Your investment of $5000 has produced a profit of $300. The managers think that if you leave your $5000 invested with
40. You are thinking about investing $5000 in your friend’s landscaping business. Even though you know the investment is risky and you can’t be sure, you expect your investment to be worth $5750
37. You are pleased to see that you have been given a 5% raise this year. However, you read on the Wall Street Journal Web site that inflation over the past year has been 2%. How much better off are
36. Assume inflation is 0.2% per month. Would you rather earn a nominal return of 0.75% per month, or a real return of 6.5% APR, compounded annually?
35. Assume the inflation rate is 3% APR, compounded annually. Would you rather earn a nominal return of 5% APR, compounded semiannually, or a real return of 2% APR, compounded quarterly?
34. If the rate of inflation is 5%, what nominal interest rate is necessary for you to earn a 3% real interest rate on your investment?
33. In 1975, interest rates were 7.85% and the rate of inflation was 12.3% in the United States. What was the real interest rate in 1975? How would the purchasing power of your savings have changed
*32. Five years ago you took out a 5/1 adjustable rate mortgage and the five-year fixed rate period has just expired. The loan was originally for $300,000 with 360 payments at 4.2% APR, compounded
31. Your firm has taken out a $500,000 loan with 9% APR (compounded monthly) for some commercial property. As is common in commercial real estate, the loan is a five-year loan based on a 15-year
30. You have credit card debt of $25,000 that has an APR (monthly compounding) of 15%.Each month you pay the minimum monthly payment. You are required to pay only the outstanding interest. You have
29. The mortgage on your house is five years old. It required monthly payments of$1402, had an original term of 30 years, and had an interest rate of 10% (APR).In the intervening five years, interest
*28. Your friend tells you he has a very simple trick for taking one-third off the time it takes to repay your mortgage: Use your Christmas bonus to make an extra payment on January 1 of each year
*27. Oppenheimer Bank is offering a 30-year mortgage with an APR of 5.25% based on monthly compounding. With this mortgage your monthly payments would be $2,000 per month. In addition, Oppenheimer
*26. Consider again the setting of Problem 25. Now that you realize your best investment is to prepay your student loan, you decide to prepay as much as you can each month.Looking at your budget, you
*25. You have an outstanding student loan with required payments of $500 per month for the next four years. The interest rate on the loan is 9% APR (monthly). You are considering making an extra

Showing 100 - 200 of 6343

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Last

Services

Sitemap
Fun
Definitions
Become Tutor
Study Help Categories
Recent Questions
Expert Questions

Company Info

Security
Copyrights
Privacy Policy
Terms & Conditions
SolutionInn Fee
Scholarship

Get In Touch

About Us
Contact Us
Career
Jobs
FAQ
Campus Ambassador

Secure Payment

Download Our App

© 2024 SolutionInn. All Rights Reserved