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You give up a full time salary of $45000 a year to go to school for 2 years. The total cost of going to school is $30000. If you want to be able to recover your investment in 5 years or less, what is the minimum salary you would need to earn upon earning your degree?
Hamada’s equation can be used to estimate the change of beta resultant from a change in leverage. Suppose a company has a beta of 2,00 with a debt/equity ratio of 2 and that the applicable tax rate is 28%. What would the unlevered beta be for the company as determined by the equation?
Your client is deciding between two investment choices: one that pays $100 per year in perpetuity, and another that pays $100 per year for 100 years. The current market interest rate for investments of similar risk is at 10% p.a. What is the present value of these two investments? Are they similar? Explain.
and another that pays $100 per year for 100 years. The current market interest rate for investments
of similar risk is at 10% p.a. What is the present value of these two investments? Are they similar?
Explain.
On the new issuance, Market is expecting 25bp premium to secondary market. What would be the expected auction yield/price of new treasury bond?
capital structure composition. Currently, the structure consists of R50m in debt
and R20m in equity, which is higher than the target D/E ratio. The FM can access
either more equity, or more debt, to finance future projects, however, it is
expected that the cost of debt will increase if more debt is incurred. Analyst
reports indicates that the company’s current share price is in line with
expectations and that the company has little in the way of retained earnings. The
FM chooses to issue equity to fund future projects. Which of the following theories
best describes the action taken in the given scenario?
A. Market timing
B. Pecking order
C. M&M
D. Trade-off
a. Other things held constant, a callable bond would have a lower required rate of
return than a noncallable bond.
b. Other things held constant, a corporation would rather issue noncallable bonds than
callable bonds.
c. Reinvestment rate risk is worse from a typical investor's standpoint than interest
rate risk.
d. If a 10-year, R1 000 par, zero coupon bond were issued at a price which gave
investors a 10 percent rate of return, and if interest rates then dropped to the point
where rd = YTM = 5%, we could be sure that the bond would sell at a premium over
its R1 000 par value.
a. A 10-year, R1000 face value, 10 percent coupon bond with semiannual interest
payments.
b. A 10-year, R1000 face value, 10 percent coupon bond with annual interest
payments.
c. A 10-year, R1000 face value, zero coupon bond.
d. A 10-year R100 annuity.
(3 points) Determine which one poses the highest price risk.
is currently selling for R1 135.90, producing a nominal yield to maturity of 8 percent.
However, the bond can be called after 5 years for a price of R1 050.
i) (3 points) What is the bond’s nominal yield to call?
ii) (2 points) If you bought this bond, do you think you would be more likely to earn the
YTM or the YTC? Why?
#340153 on Dec 2023