Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

15. Firm X has a Return on Equity (ROE) equal to 10%, a total debt ratio equal to 0.6. If the firm has an fixed-asset

15. Firm X has a Return on Equity (ROE) equal to 10%, a total debt ratio equal to 0.6. If the firm has an fixed-asset turnover ratio of 0.54, what is its profit margin? *

a) 7.4%

b) 3.08%

c) 9%

d) 8.5%

e) None of the above

16. A companys 10-year bonds are yielding 8.5% per year. Treasury bonds with the same maturity are yielding 6.9% per year, and the real risk-free rate (r*) is 2.7%. The inflation premium is 3%, the liquidity premium is 0.5%, and the maturity risk premium is 1.2%. What is the default risk premium on the corporate bonds? *

a) 1.1%

b) 2.1%

c) 2.3%

d) 3.5%

e) None of the above

17. A companys 5-year bonds are yielding 9.3% per year. Treasury bonds with the same maturity are yielding 6.1% per year, and the real risk-free rate (r*) is 2.3%. The inflation premium is 2.4%, the liquidity premium is 1.3%, and the default risk premium is 0.9%. What is the maturity risk premium on the corporate bonds? *

a) 0.5%

b) 1.4%

c) 2.7%

d) 3.3%

e) None of the above

18. An investment has two options: 1) The first option includes annual payments of $1000, $1100, and $2200 at the end of each of the next three years, respectively. 2) The other option is the payment of one lump sum amount today. You are trying to decide which offer to accept given the fact that your discount rate is 10 percent. What is the minimum amount that you will accept today if you are to select the lump sum offer? *

a) 2719

b) 3300

c) 3000

d) 2479

e) None of the above

19. A 5-year corporate bond is yielding 12.3% per year. The real risk-free rate (r*) is 3.5%. Inflation is expected to be 3% this year, 4% next year, and 6% for all years after that. The liquidity premium is 1.2%, and default risk premium is 2.1%. What is the maturity risk premium for this 5-year bond? *

a) 0.5%

b) 0.75%

c) 1%

d) 2%

e) None of the above

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Essentials Of Investments

Authors: Zvi Bodie, Alex Kane, Alan J. Marcus

8th Edition

0077606779, 978-0697789945

More Books

Students also viewed these Finance questions

Question

3. I know I will be able to learn the material for this class.

Answered: 1 week ago