1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
riadik2000 [5.3K]
3 years ago
8

Short Term Inc. has issued zero-coupon bonds that mature in one year. The returns from holding these bonds have a beta of 0.25.

There is a chance of 70% that the bonds will pay full value, and a chance of 30% that they will only be worth 60 cents for each dollar of face value.Assume that the CAPM holds, that the riskless rate is 5% and that the expected return on the market is 15%.1) What is the current price of the bonds, per $100 face value?2) What is the yield to maturity on the bonds?3) What is the expected return on the bonds?
Business
1 answer:
Nataly [62]3 years ago
6 0

Answer:

1. Current bonds price = $81.86.

2. Yield to maturity  = 22.16%.

3. 3.  Expected Return = 7.5%.

Explanation:

Required Rate = Rf + beta*MRP

          = 5% + 0.25*(15% - 5%)

       = 5% +0.25*10%

              = 5% + 2.5% = 7.5%

 Required Rate = 7.5%

  Expected Future Value = 70% x $100 + 30% x $60

       = (0.7*$100) + (0.3*$60)

       = $(70+18) = $88

    Expected Future Value = $88

1.  Current bonds price = 88/1.075 = $81.86

2.  Yield to maturity = 100/81.86 - 1 = 1.22159785-1 = 0.22159785 =   22.159785% = 22.16%

3.  Expected Return = 7.5%

You might be interested in
In the field of quality control, the science of statistics is often used to determine if a process is "out of control". Suppose
devlian [24]

Answer:

probability = 0.008

probability = 0.0256

Explanation:

we know here probability of defective is 0.2

so probability of not defective is 1 - 0.2 = 0.8

as we know 3 item is arrive off process line in succession

so The probability that an item is defective is

as P(defective) = 0.20

as all item are independent so

probability that all three items are defective is

probability = 0.20  × 0.20  × 0.20 = 0.008

and

probability that exactly 3 of next 4 are defective

so number of way that can choose 3 out of 4 is

= \frac{4!}{3! ( 4-3)!}

= 4

so as all are independent probability is

probability = ( the number of way to choose 3 out of 4 ) × ( 3 item defective ) × ( 1 item not defective )

probability = _4 C_3 × 0.2³ × ( 1- 0.2)

probability = 4 × 0.008 × 0.8

probability = 0.0256

4 0
3 years ago
How is having a security system for your home a risk
Iteru [2.4K]
<h2>The security system will alert authorities and deter  criminals, protecting your valuables and property. </h2><h2>The security system will give you peace of mind</h2>

Explanation:

Option 1: We cannot say that every visitor will be a thief or criminal. So a "home security system" is to stay alert from danger

Option 2: Burglars and home security system is to alert authorities and to protect our valuables. But home security system in addition can detect flood, fire, etc.

Option 3: Yes that's true. We feel like there is someone to protect us and our valuables. So it provides peace of mind.

Option 4: Why should we keep the doors unlocked? It will tempt for crime to happen. So this choice is invalid.

5 0
3 years ago
Which of the following is an unethical behavior for a salesperson?
Natalija [7]
The correct answer is A.
4 0
2 years ago
Read 2 more answers
NbADBGLKvb.ka Dvhb.wrkbvkrh.hbk.cS
elixir [45]

Answer:

It's A.

Explanation:

Can i please have brainlest.

3 0
3 years ago
Read 2 more answers
Several years ago the Haverford Company sold a $1,000 par value bond that now has 25 years to maturity and an 8.00% annual coupo
kodGreya [7K]

Answer:

5.4%

Explanation:

Several years ago the Haverford Company sold a $1,000 par value bond that now has 25 years to maturity and an 8.00% annual coupon that is paid quarterly. The bond currently sells for $900.90, and the company’s tax rate is 40%. What is the component cost of debt for use in the WACC calculation

Face value of bond = coupon amount / interest rate

1000 = 80 / 8%

Therefore 900.9 = 80 / revised interest rate

multiply both sides by the 'revised interest rate

revised interest rate x 900.9 = 80

Hence, revised interest rate = 80  / 900.9 = 9%

Secondly if the company’s tax rate is 40%, the component cost of debt for use in the WACC calculation = kd (1 - t)

where:

kd = Cost of debt

t = tax rate

Therefore cost of debt for use in the WACC calculation = 9% (1-0.4) = 5.4%

4 0
2 years ago
Other questions:
  • Genna Raiter, the president and CEO of Car Keepers Garage, has asked several of her managers and employees to help establish a s
    7·1 answer
  • Assume the indirect method is used to compute cash flows from operations. For each item listed below, indicate the effect on net
    14·1 answer
  • "Establishes a commitment to the goal" Which goal-setting step is described by this sentence?
    11·2 answers
  • The following inventory transactions took place near December 31, 2018, the end of the Rasul Company's fiscal year-end:On Decemb
    5·1 answer
  • The Production Department of Hruska Corporation has submitted the following forecast of units to be produced by quarter for the
    12·1 answer
  • rippett Industries manufactures cleaning products. During the year, the company spent $600,000 on chemicals and $728,000 on conv
    11·1 answer
  • A partially amortizing mortgage is made for $60,000 for a term of 10 years. The borrower and lender agree that a balance of $20,
    9·1 answer
  • A machine operates with the following production cycle: 34 minutes of setup, 70 minutes of production. While in production, the
    13·1 answer
  • Abburi Company's manufacturing overhead is 40% of its total conversion costs. It direct laboris $63,600 and if direct materials
    10·1 answer
  • developing a content distribution goal begins with identifying the purpose behind your distribution efforts. which questions can
    7·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!