Answer:
b. 5.27%
Explanation:
First, find the PV of the bond today. With a financial calculator, input the following and adjust the variables to semi-annual basis;
Face value; FV = 1000
Maturity of bond; N = 15*2 = 30
Semiannual coupon payment = (8.75%/2)*1000 = 43.75
Semi annual interest rate; I/Y = 3.25%
then compute Price; CPT PV= 1,213.547
Next, with the PV , compute the yield to call (I/Y) given 6 years;
Maturity of bond; N = 6*2 = 12
Semiannual coupon payment = (8.75%/2)*1000 = 43.75
Price; PV= -1,213.547
Face value; FV = 1,050
then compute Semiannual interest rate; CPT I/Y = 2.636%
Convert the semiannual rate to annual yield to call = 2.636*2 = 5.27%
Answer: B.both stocks are equally good investments
Explanation:
The options are;
A.it is better to buy shares in Bad Firm
B.both stocks are equally good investments
C.it is better to buy shares in Good Firm
D.both stock prices react equally to the same information
From the question, we are informed that Good Firm is highly profitable and will grow rapidly in the future while Bad Firm faces the same risks but barely makes a profit and will not grow at all. It should be noted that In an efficient market, both stocks are equally good investments.
One thing for sure is it’s going to slope down soon
Answer:
the money supply increase in response to a $1 billion increase in excess reserves for the whole banking system is $6.67billion.
Explanation:
Increase in money supply = 1/0.15
Increase in money supply = $6.67 billion
Therefore, the money supply increase in response to a $1 billion increase in excess reserves for the whole banking system is $6.67billion.
