Answer:
2 year yield 4 years from now 37.99%
Explanation:
given data
Interest rates r1 = 6.05% = 0.0605
Interest rates r2 = 7.6% = 0.0760
to find out
2 year yielding 4 years from now
solution
we find here 2 year securities will be yielding 4 years from now by as
2 year yield 4 years from now = ![\frac{(1+r2)^{t2}}{[(1+r1)^{t1}]^{0.5}}](https://tex.z-dn.net/?f=%5Cfrac%7B%281%2Br2%29%5E%7Bt2%7D%7D%7B%5B%281%2Br1%29%5E%7Bt1%7D%5D%5E%7B0.5%7D%7D)
- 1
put here value we get
2 year yield 4 years from now = ![\frac{(1+0.0760)^6}{[(1+0.0605)^4]^{0.5}}](https://tex.z-dn.net/?f=%5Cfrac%7B%281%2B0.0760%29%5E6%7D%7B%5B%281%2B0.0605%29%5E4%5D%5E%7B0.5%7D%7D)
- 1
2 year yield 4 years from now = 1.379915 - 1
2 year yield 4 years from now = .379915
so 2 year yield 4 years from now 37.99%
Answer:
The disadvantage of using range is:
Explanation:
It not measure the spread of the majority of values in a data set (only measures the spread between highest and lowest values).
Answer:
The correct option is B,$29.05
Explanation:
The required rate of return is can be computed using Miller and Modgiliani CAPM formula below:
Ke=Rf+Beta*Mrp
Ke is the cost of equity which is unknown
Rf is the risk free rate of 3.00%
Mrp is the market risk premium of 5.50%
Beta is 1.2
Ke=3.00%+(1.2*5.50%)
Ke =9.6%
The current price of the common stock is the present value of dividends payment and stock price(terminal value) as shown below discounted with Ke of 9.6%
Year 1 $1.25*(1+25%)=$1.56
*1/(1+9.6%)^1=$1.43
Year 2 $1.56*(1+25%)=$1.95
*1/(1+9.6%)^2=$1.63
Year 3 $1.95*(1+25%)=$2.44
*1/(1+9.6%)^3=$1.85
Year 4 $2.44*(1+25%)=$3.05
*1/(1+9.6%)^4=$2.11
Terminal value=year 4 dividend/ke=$3.05/9.6%=$31.79*1/(1+9.6%)^4=$22.03
Total present values=$1.43
+$1.63+$1.85
+$2.11
+$22.03=$29.05
Answer:
b. 7.35%
Explanation:
Calculation for What is the best estimate of the after-tax cost of debt
First step is to use financial calculator to find I/Y
FV= 1,000
N=20 years *2 = 40
PMT=9%*1,000/2 = 45
PV = -930.41
I/Y=?
Hence,
I/Y = 4.9%
Second step is to calculate YTM
YTM=4.9%*2
YTM= 9.8%
Now let Calculate the best estimate of the after-tax cost of debt
Using this formula
After tax cost of debt = YTM*(1-tax rate)
Let plug in the formula
After tax cost of debt =9.8%*(1-25%)
After tax cost of debt =9.8*75%
After tax cost of debt =0.0735*100
After tax cost of debt == 7.35%
Therefore the best estimate of the after-tax cost of debt will be 7.35%
Lauren made an error in step 3 because she should have subtracted expenses from income.
Net income = (Total of all sources of income)- (Total of all bills and expenses)
You must subtract expenses because they are things you are <u>paying for.</u>
