Q: To find the present value of an uneven series of cash flows
To find the present value of an uneven series of cash flows, you must find the PVs of the individual cash flows and then sum them. Annuity procedures can never be of use, even when some of the cash fl...
See AnswerQ: The present value of a perpetuity is equal to the payment on
The present value of a perpetuity is equal to the payment on the annuity, PMT, divided by the interest rate, I: PV − PMT/I. What is the future value of a perpetuity of PMT dollars per year? (Hint: The...
See AnswerQ: You read in The Wall Street Journal that 30-day T
You read in The Wall Street Journal that 30-day T-bills are currently yielding 5.5%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current intere...
See AnswerQ: The real risk-free rate is 3%, and inflation is
The real risk-free rate is 3%, and inflation is expected to be 3% for the next 2 years. A 2-year Treasury security yields 6.2%. What is the maturity risk premium for the 2-year security?
See AnswerQ: If a firm goes from zero debt to successively higher levels of
If a firm goes from zero debt to successively higher levels of debt, why would you expect its stock price to rise first, then hit a peak, and then begin to decline?
See AnswerQ: An analyst is evaluating securities in a developing nation where the inflation
An analyst is evaluating securities in a developing nation where the inflation rate is very high. As a result, the analyst has been warned not to ignore the cross-product between the real rate and inf...
See AnswerQ: One-year Treasury securities yield 5%. The market anticipates that
One-year Treasury securities yield 5%. The market anticipates that 1 year from now, 1-year Treasury securities will yield 6%. If the pure expectations theory is correct, what is the yield today for 2-...
See AnswerQ: Interest rates on 4-year Treasury securities are currently 7%,
Interest rates on 4-year Treasury securities are currently 7%, while 6-year Treasury securities yield 7.5%. If the pure expectations theory is correct, what does the market believe that 2-year securit...
See AnswerQ: Jaster Jets has $10 billion in total assets. Its balance
Jaster Jets has $10 billion in total assets. Its balance sheet shows $1 billion in current liabilities, $3 billion in long-term debt, and $6 billion in common equity. It has 800 million shares of comm...
See AnswerQ: The real risk-free rate is 3%. Inflation is expected
The real risk-free rate is 3%. Inflation is expected to be 3% this year, 4% next year, and 3.5% thereafter. The maturity risk premium is estimated to be 0.05 × (t – 1)%, where t = number of years to m...
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