Questions from Corporate Finance


Q: If a bond’s yield to maturity does not change, the return

If a bond’s yield to maturity does not change, the return on the bond each year will be equal to the yield to maturity. Confirm this with a simple example of a four-year bond selling at a premium to f...

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Q: Find the arbitrage opportunity (opportunities?). Assume for simplicity that coupons

Find the arbitrage opportunity (opportunities?). Assume for simplicity that coupons are paid annually. In each case the face value of the bond is $1,000.

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Q: You are quoted an interest rate of 6% on an investment

You are quoted an interest rate of 6% on an investment of $10 million. What is the value of your investment after four years if interest is compounded: a. Annually? b. Monthly? or c. Continuously?...

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Q: Which of the following statements always apply to corporations? a

Which of the following statements always apply to corporations? a. Unlimited liability. b. Limited life. c. Ownership can be transferred without affecting operations. d. Managers can be fired with...

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Q: The duration of a bond that makes an equal payment each year

The duration of a bond that makes an equal payment each year in perpetuity is (1 + yield)/yield. Prove it.

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Q: Calculate the IRR (or IRRs) for the following project:

Calculate the IRR (or IRRs) for the following project: For what range of discount rates does the project have positive NPV?

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Q: What spot interest rates are implied by the following Treasury bonds?

What spot interest rates are implied by the following Treasury bonds? Assume for simplicity that the bonds pay annual coupons. The price of a one-year strip is 97.56%, and the price of a four-year str...

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Q: Pharmecology just paid an annual dividend of $1.35 per

Pharmecology just paid an annual dividend of $1.35 per share. It’s a mature company, but future EPS and dividends are expected to grow with inflation, which is forecasted at 2.75% per year. a. What i...

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Q: Look one more time at Table 3.5. /

Look one more time at Table 3.5. a. Suppose you knew the bond prices but not the spot interest rates. Explain how you would calculate the spot rates. b. Suppose that you could buy bond...

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Q: Consider three investors: a. Mr. Single invests for

Consider three investors: a. Mr. Single invests for one year. b. Ms. Double invests for two years. c. Mrs. Triple invests for three years. Assume each invests in company Z (see Problem 5). Show tha...

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