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Q: what does the market believe will be the stock price at the end of 3 years?
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Q: The total market value of the equity of Okefenokee Condos is $3 million, and the total value of its…
A: Required Rate of Return = Risk-free Rate + Beta x (Risk Premium)
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A: A popular mathematical method in finance for pricing European-style options is the Black-Scholes…
Q: Assume you make the following investments: A $10,000 investment in a 10-year T-bond that yields…
A: T Bond Yield = ty = 6%Corporate Bond Yield = cy = 8.30%Liquidity Risk Premium = lrp = 0.50%
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Q: The total market value of the equity of Okefenokee Condos is $12 million, and the total value of its…
A: Formulas used are:Using CAPM model Required rate of return = Risk-free rate + Beta * (Market…
Q: You are considering an investment in Justus Corporation's stock, which is expected to pay a dividend…
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Q: A company's 5-year bonds are yielding 10% per year. Treasury bonds with the same maturity are…
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Q: . Suppose you are considering two possible investment opportunities: a 12-year Treasury bond and a…
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Q: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the…
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Assume that you are on the financial staff of Kumpulan Bossque, and you have collected the following data to estimate the company’s WACC. (1) The firm's noncallable bonds mature in 10 years, have an 8.00% annual coupon and a current yield of 7.62% (2) The company’s tax rate is 27%. (3) The risk-free rate is 6.00%, the market risk premium is 7.00%, and the stock’s beta is 1.20. (4) The target capital structure consists of 45% debt and the balance is common equity. Kumpulan Bossque uses the
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- A company currently pays a dividend of $3.8 per share (D0 = $3.8). It is estimated that the company's dividend will grow at a rate of 25% per year for the next 2 years, and then at a constant rate of 6% thereafter. The company's stock has a beta of 1.4, the risk-free rate is 9.5%, and the market risk premium is 4.5%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer to the nearest cent.A company currently pays a dividend of $3.2 per share (D0 = $3.2). It is estimated that the company's dividend will grow at a rate of 23% per year for the next 2 years, and then at a constant rate of 8% thereafter. The company's stock has a beta of 1.3, the risk-free rate is 9.5%, and the market risk premium is 4.5%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer to the nearest cent.You are considering an investment in Justus Corporation's stock, which is expected to pay a dividend of $2.25 a share at the end of the year (D₁ = $2.25) and has a beta of 0.9. The risk-free rate is 5.3%, and the market risk premium is 5.5%. Justus currently sells for $22.00 a share, and its dividend is expected to grow at some constant rate, g. Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 3 years? (That is, what is P3?) Do not round intermediate calculations. Round your answer to the nearest cent. $
- A firm has liabilities of $98 in one year, $100 in two years, and $107 in three years. The firm exactly matches its liabilities by purchasing the following zero or annual coupon bonds redeemable at par: Bond Maturity Par Value Coupon Rate Effective Yield A 1 year 100 5% 3% B 2 years 100 0% 4% C 3 years 100 4% 5% Find the number of units of Bond A that must be purchased to match the liabilities exactly. (A) 0.894 (B) 0.897 (C) 0.913 (D) 0.933 (E) 0.959Suppose that a firm with a stock price of $80 just announced that it expects to pay a $100 per share liquidating dividend in 1 year, although the exact amount of the dividend depends on the performance of the company this year. Assume that the CAPM is a good description of stock price returns and that the stock’s beta is 1.5, the market’s expected return is 12%, and the risk-free rate is 5%. 1) Is the stock priced correctly now? 2) What is the alpha of the stock? 3) What would you expect to happen to the stock price in an efficient market after the announcement? Give typing answer with explanation and conclusionImagine that, during a job interview, you are handed the following quotes on U.S. Treasuries: Bond Maturity Coupon rate Yield to (years) maturity 1 1 5% 4.5% 2 2 5% 5.0% 3 3 0% 5.0% Assume that the par value is $100 and coupons are paid annually, with the first coupon payment coming in exactly one year from now. The yield to maturity is also quoted as an annual rate. What should be the 1-year forward rate between years 2 and 3? a. 6.482% ○ a. O b. 6.137% c. 6.507% O d. 6.736% NAVA
- What are the excel formulas and answers to Part A and Part B. Part A: (Left Side) KIMCHI CORPORATION's capital investment bonds have a maturity of 10 years with a face value of $1,000 and a semi-annual 10% coupon. They are callable in 3 years at $1150 and currently sell for $1,290. What is the nominal yield to maturity and the nominal yield to call? What return should investors expect to earn on these bonds. Part B: (Right Side) KIMCHI CORPORATION also has bonds with 5 years left to maturity with an annual coupon of 10%. What would be the yield to maturity at a current market price of $850? What would be the yield to maturity if the current market price would be $1,125? What would be the price of the bond to you if your cost of capital was 12%? What would be the price of the bond to you if your cost of capital was 8%?Suppose you are considering two possible investment opportunities: a 12-year Treasury bond and a 7-year, AA-rated corporate bond. The current real risk-free rate is 3%, and inflation is expected to be 2% for the next 2 years, 3% for the following 4 years, and 4% thereafter. The maturity risk premium is estimated by this formula: MRP = 0.02(t - 1)%. The liquidity premium (LP) for the corporate bond is estimated to be 0.3%. You may determine the default risk premium (DRP), given the company's bond rating, from the following table. Remember to subtract the bond's LP from the corporate spread given in the table to arrive at the bond's DRP. Corporate Bond Yield Rate Spread = DRP + LP U.S. Treasury 0.73 % — AAA corporate 0.93 0.20 % AA corporate 1.33 0.60 A corporate 1.75 1.02 What yield would you predict for each of these two investments? Round your answers to three decimal places. 12-year Treasury yield: 6.553%----->correct 7-year Corporate yield: ? %…Assume that Company A is in stable growth. Its current earnings are expected to grow 6% a year in perpetuity, and its stock has a beta of 0.85. If the current Treasury bond rate is 4%, the current estimate of the market risk premium is 6%, and the stock is trading at a P/E ratio of 9.5, estimate Company A's return on equity. The return on equity is?
- The total market value of the equity of Okefenokee Condos is $3 million, and the total value of its debt is $2 million. The treasurer estimates that the beta of the stock currently is 1.1 and that the expected risk premium on the market is 10%. The Treasury bill rate is 5%, and investors believe that Okefenokee's debt is essentially free of default risk. a. What is the required rate of return on Okefenokee stock? Note: Do not round intermediate calculations. Enter your answer as a whole percent. b. Estimate the WACC assuming a tax rate of 21%. Note: (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. c. Estimate the discount rate for an expansion of the company's present business. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. d. Suppose the company wants to diversify into the manufacture of rose-colored glasses. The beta of optical manufacturers with no debt outstanding is 1.3.…If the firm’s bonds earn a return of 12 percent, what will rs be based on the bondyield-plus-risk-premium approach, using the midpoint of the risk premium range?The earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow at 7 percent per year in the future. Carpetto’s common stock sells for $23 per share, its last dividend was $2.00, and it will pay a dividend of $2.14 at the end of the current year. a)Assuming you have equal confidence in the inputs used for the three approaches, what is your estimate of Carpetto’s cost of common equity? b)If the firm’s bonds earn a return of 12 percent, what will rs be based on the bondyield-plus-risk-premium approach, using the midpoint of the risk premium range?Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $2.10 and it expects dividends to grow at a constant rate g = 4.4%. The firm's current common stock price, P0, is $25.00. The current risk-free rate, rRF, = 4.7%; the market risk premium, RPM, = 6.0%, and the firm's stock has a current beta, b, = 1.15. Assume that the firm's cost of debt, rd, is 11.00%. The firm uses a 3.0% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Round your answers to two decimal places. CAPM cost of equity: % Bond yield plus risk premium: % DCF cost of equity: % What is your best estimate of the firm's cost of equity?
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