. There is an investment opportunity that will pay you $5 each quarter for fifteen years. The investment has a beta risk of 0.8. The annual market risk premium and risk-free interest rate are 8% and 2%, respectively. [hint: the rates you compute using the CAPM is in an EAR] (a) If I am selling a security based on such an investment opportunity (that is, it has the same benefit and risk as the above investment opportunity), how much are you willing to pay? (b) Suppose there is a fifteen-year bond that pays 3% coupon per year (on a semi-annual basis) and with a face value of $1000. The bond has beta risk of 0.2. What should be the bond price? (c) If you are allowed to convert the bond into my security, what should be the term of trade? (i.e. how many bonds for each shares of my security?)

Answers

Answer 1

Calculation of the price of the security based on such an investment opportunity is done by CAPM, which is the Capital Asset Pricing Model.

 In order to find out the price of the security, we first need to calculate the required rate of return. Here, the formula for CAPM can be used as follows: CAPM = RF + Beta*(RPM) Where,RF is the risk-free interest rate, Beta is the beta risk, and RPM is the expected market return or the risk premium.

Using the above formula, we can calculate

\(CAPM = 2% + 0.8*(8% - 2%) = 7.2%\)

Then, to calculate the present value of cash flow of the investment, we can use the formula of present value of an annuity.

PV = C * ((1 - (1 / (1+r)n)) / r)

Here, C is the cash flow, r is the discount rate and n is the number of periods. In our case,

C = $5, r = 7.2%

per quarter, and n = 60 quarters. Hence, using the above formula, we get

PV = $229.75

So, the price of the security based on such an investment opportunity is

$229.75

C = $30, FV = $1000, r = 3.6%

per semi-annual period, and n = 30 semi-annual periods. Hence, using the above formula,

we get PV = $977.53

So, the price of the bond is

$977.53

The term of trade can be calculated using the following formula :Term of trade = Price of bond / Price of security

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Related Questions

Cain Company reports net cash provided by operating activities of $35,000. It also reports the following information under “Adjustments to reconcile net income to net cash provided by operating activities” on its statement of cash flows (using the indirect method).

Cain Company reports net cash provided by operating activities of $35,000. It also reports the following

Answers

It can be seen from the solutions given that Cain's net income is $24,000.

Here is the solution:

Net income = Net cash provided by operating activities - Adjustments

= $35,000 - $6,000 - $10,000 + $4,000 + $7,000 + $4,000

= $24,000

Therefore, Cain's net income is $24,000.

Here is a breakdown of the adjustments:

To determine cash flow from operations, it is necessary to include the gain on equipment sales in the net income as it is a non-cash entry.

A rise in accounts receivable implies that customers are prolonging payment of their invoices, resulting in decreased cash flow from the company's activities.

The depreciation expense is classified as a non-cash expense, hence it must be included in the calculation of cash from operations by adding it back to the net income.

A decrease in inventory indicates that the company is experiencing faster turnover of its inventory, leading to increased cash flow generated by its operations.

A rise in prepaid expenses denotes that the company is channeling more funds towards prepaid expenditures like insurance and rent, implying a reduced cash inflow from its operational activities.

A decline in the amount of wages that the company owes indicates that it is not promptly compensating its workforce. Consequently, this implies that the company's operational cash flow is reduced.

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when beta inc. acquired redd communications, there were rumors of staff reductions and operations closures. what was the cause for this reaction by the redd communications staff?

Answers

When Beta Inc. acquired Redd Communications, the reason for the reaction of the Redd Communications staff was the rumors of staff reductions and operations closures.

After Beta Inc. acquired Redd Communications, the employees of Redd Communications were uncertain of their future, and there were rumors of staff reductions and operations closures. It caused the Redd Communications staff to be apprehensive and worried about their jobs and their future with the company, as it is a common occurrence during acquisitions. Communications staff.The communications staff is responsible for creating and delivering information to an organization's public, clients, investors, or other external stakeholders.

They must ensure that the company's image is presented effectively to the public, customers, and shareholders in order to maintain and build the company's reputation. The communications staff must have excellent communication skills and a thorough understanding of the company and the industry it operates in.

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You are reporting on a concert that is coming to town tonight. Since the concert is a big event, you have a full minute for your news segment. You have shot all kinds of footage with the band, interviews with the fans, video of the venue and the band’s tour bus arriving and found footage from some of the band’s previous shows.

Use the storyboard below to edit all of your footage into a one-minute story. In each box describe what footage you’d use, write what will be said (or what viewers will hear) and how long it will last. Your story should include commentary and information on the concert along with the visuals.

Answers

There needs to be extensive planning for this. To begin, you must focus on the point that you want to emphasise the most, making sure to adhere to all the guidelines. There should be a box for each highlighted section.

In management, what does planning mean?

Setting goals and figuring out a plan of action to reach those goals is the responsibility of planning, a management function. It is necessary for managers to foresee future situations and be aware of current environmental factors affecting their firm. The act of planning is considering the steps necessary to accomplish a specific objective. The essential ability for mental time travel, foresight, is the foundation of planning. It is claimed that one of the main forces in human evolution was the development of foresight, or the ability to plan forward.

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When you are in the good to excellent credit score range, you are likely going to get a better interest rate.
True
False

Answers

Answer:

True

Explanation:

Who wants points answer in this question points for 10 points ;)

Answers

Answer:

OK Thanks for the free points

yesExplanation: yes thank you so much

Economies of scale give an advantage to what type of company? A. A company with a small number of employees B. A company that makes many sales C. A company with many variable costs D. A service-based company.

Answers

Answer:

B. A company that makes many sales

Explanation:

I got the answer right on Edge.

Check My Wor
Compute the variances in dollar amount and in percentage. (Round to the nearest whole percent.) Indicate whether the variance is
favorable (F) or unfavorable (U).
Budgeted Income Amount $150.00
Actual Amount $120.00

Answers

The variance is $30 which is favorable

Answer: The Answer Is

Dollar Variance $ 30

Percent varience 20%

F Or U which its U

Explanation: Hoped This Helped Thx For The Points!!

The demand functions for goods 1 and 2 are: 4;(P1, P2) = 600 - 6P; +P; for j=1,2 The two firms, each producing one of these good, have identical costs given by TC;(q;) = 10q; for j=1,2 ? (d) Now assume that the firms form a perfect cartel. Find the cartel profits as a function of the prices charged for each product. Using the cartel best response functions, find the prices that maximize cartel profits. LOCATE the cartel prices of each firm in the best response function diagram. Find the quantities produced by each firm under cartel. Find the cartel profits of each firm. Do firms have an incentiveto join the cartel?

Answers

The cartel profits are determined by the total revenue of the cartel minus the total cost of the cartel. The total revenue of the cartel is given by the sum of the demand functions of the two firms: TR = 4(P1, P2) = 600 - 6P1 + P2.

The total cost of the cartel is given by the sum of the cost functions of the two firms: TC = 10q1 + 10q2. The cartel profits can be found by substituting the optimal prices (P1 and P2) and the optimal quantities (q1 and q2) into the formula for the total revenue and total cost:

Profit = TR(P1, P2) – TC(q1, q2)

The prices that maximize the cartel profits can be found by setting the partial derivatives of the cartel profits with respect to P1 and P2 equal to 0. This results in the optimal prices of P1 = 300 and P2 = 300. These prices can be located on the best response function diagram.

The quantities produced by each firm under the cartel are q1 = 150 and q2 = 150. The cartel profits of each firm are Profit1 = Profit2 = 4500.

Firms have an incentive to join the cartel because they can increase their profits by setting a single price for the market and dividing the profits among themselves. By joining the cartel, they are able to increase their profits by taking advantage of the market power they have by controlling the prices.

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Engi Sola Corp. Manufactures solar engines for tractor trailers. Given the fuel savings available, new orders for 125 units have been made by customers requesting credit. The variable cost is $9,700 per unit, and the credit price is $11,100 each. Credit is extended for one period. The required return is 1.9% per period. If Engi Sola extends credit, it expects that 30% of the customers will be repeat customers and place the same order every period forever, and the remaining customers will be one-time orders.

Answers

Answer:

The net present value (NPV) of the decision to grant credit is $2,938,157.89.

Explanation:

Note: This question is not complete. The complete question is therefore provided before answering the question as follows:

Engi Sola Corp. Manufactures solar engines for tractor trailers. Given the fuel savings available, new orders for 125 units have been made by customers requesting credit. The variable cost is $9,700 per unit, and the credit price is $11,100 each. Credit is extended for one period. The required return is 1.9% per period. If Engi Sola extends credit, it expects that 30% of the customers will be repeat customers and place the same order every period forever, and the remaining customers will be one-time orders.

Calculate the NPV of the decision to grant credit.

The explanation of the answer is now given as follows:

Number of new orders = 125 units

Percentage of repeat order = 30%

Number of order that will be repeated forever = Number of new orders * Percentage of repeat order = 125 * 30% = 37.50 units

Credit price per unit = $11,100

Variable cost per unit = $9,700

Contribution margin per unit = Credit price per unit - Variable cost per unit = $11,100 - $9,700 = $1,400

Total contribution for all new order = Number of new orders * Contribution margin per unit = 125 * $1,400 = $175,000

Total contribution margin for order that will be repeated forever = Contribution margin per unit * Number of order that will be repeated forever = $1,400 * 37.50 = $52,500

Net present value (NPV) of total contribution margin for order that will be repeated forever = Total contribution margin for repeated order forever / Required return = $52,500 / 1.9% = 2,763,157.89

Net present value (NPV) of the decision to grant credit = Total contribution for all new order + NPV of total contribution margin for order that will be repeated forever = $175,000 + 2,763,157.89 = $2,938,157.89

Therefore, the net present value (NPV) of the decision to grant credit is $2,938,157.89.

Explain what is meant by the saying that consumers ""vote"" with their dollars every time they buy products in the marketplace.

Answers

By casting their financial votes in the form of the goods and services they desire from firms, consumers influence production. We refer to this as the consumer sovereignty. to create an item or service An entrepreneur is someone who launch new businesses.

Who are entrepreneurs?

An entrepreneur is a person who starts a new business and taking on the most of the risks and reaping the majority of the gains. The term "entrepreneurship" refers to the act of starting a business. The entrepreneur is also frequently viewed as an innovator, a source of novel concepts and products and services, and/or business models.

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can someone help me? got till the end of the day :/

can someone help me? got till the end of the day :/

Answers

Answer:

A

Explanation:

6. the cost of living is higher in california than in other states. smart-buy would like to understand if california has a disproportionate number of people making more than $125,000. how many employees in oklahoma and california made over $125,000 in 2018?

Answers

In 2018, California had a higher number of employees making over $125,000 compared to Oklahoma.

How many employees in California and Oklahoma made over $125,000 in 2018?

According to data from Census Bureau  in 2018:

California had total of 915,124 employees who made over $125,000 per yearOklahoma had 45,007 employees who made over the same amount.

This shows that California has a disproportionately higher number of high earners compared to Oklahoma. But we must note that the cost of living in California is much higher than in Oklahoma which could explain why there are more high earners in California.

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In your own words, explain Supply and Demand. In Assignment 1: Scarcity and Choice you are given an example of the supply and demand of PlayStation 2. Think about your life and then provide one example of your own of Supply and Demand.
RESPOND IN 5 SENTENCES !

Answers

Supply and demand is the fundamental concept of economics that explains how prices are determined in a market economy. The law of supply and demand states that the price of a good or service is determined by the intersection of the quantity supplied and the quantity demanded. When the quantity supplied is greater than the quantity demanded, the price will decrease, and when the quantity supplied is less than the quantity demanded, the price will increase. In my own example, during the holiday season, the demand for certain gifts such as toys, electronics, and clothing increases, while the supply remains the same, therefore prices tend to increase, and you can find some goods out of stock. Another example can be during a pandemic where the demand for masks and hand sanitizers increases while the supply is limited, prices tend to increase.

what is product placement

Answers

Answer: A practice in which manufacturers of goods or providers of a service gain exposure for their products by paying for them to be featured in movies and television programs.

Explanation:

Explanation:

Product placement Is where a company or seller places a product In a certain location so that the consumer Is more apt to buy that product, such as a candy bar or pack of gum near the cash register, leading the consumer to an impulse buy.

Two parties negotiating are taking a long time to reach agreement. you have been informed they have only proposed one option each and are not moving from original positions. what advice would you provide to facilitate the negotiations in this situation?

Answers

BATNA would be the best option for both parties. While preferences are also considered if the agreement isn't moving forward. Therefore I would like to advise both parties to consider the back-and-forth communication to negotiate a respective agreement.

If parties A and B aren't moving forward according to an agreement with negotiation and both parties are sticking to their proposal deal then there should be a need for back-and-forth communication to skip a few preferences by each to move toward the agreement.

These situations are true and difficult to tackle but the one who works as a third party has the full ability to control both the situations to control both sides and cover the pros and cons of the agreement to finalize it.

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Multiple Choice
The majority of environmental assessments result in a finding of no significant impac
False
True

Answers

Answer:

False

The majority of environmental assessments result in a finding of no significant impac is false

Which of the following is not an example of a multichannel retailer?

A. Abercrombie & Fitch

B.McDonald's

C.Target

D.None of the above​

Answers

B. the answer is mcdonald’s

Answer:

mcdonalds!!!!

Explanation:

!its right trust me those ppl who commented above are wrong, i put it in on od and it was right! on god bro.

how do basic level occupation help society​

Answers

Answer:

A job, employment, work or occupation, is a person's role in society. More specifically, a job is an activity, often regular and often performed in exchange for payment ("for a living"). Many people have multiple jobs (e.g., parent, homemaker, and employee). A person can begin a job by becoming an employee, volunteering, starting a business, or becoming a parent. The duration of a job may range from temporary (e.g., hourly odd jobs) to a lifetime (e.g., judges).

Basic level occupation can help our society in many ways. One of them is agricultural. A further explanation is provided below.

 

Agriculture would be essential employment across the globe even though it's the foundation or the core of all certain vocations, even though people must live.Otherwise, there'll be no significant population for any other activity, resulting in highly impoverished as well as uneducated people throughout the planet."

There are many jobs that a person can do like employee, homemaker, etc. A person can start his career with such jobs.

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how do basic level occupation help society

Breton Woods Standards were found to be inadequate mainly because

Answers

Answer:

A key reason for Bretton Woods' collapse was the inflationary monetary policy that was inappropriate for the key currency country of the system.

Explanation:

The US decision to suspend gold convertibility ended a key aspect of the Bretton Woods system. The remaining part of the System, the adjustable peg disappeared by March 1973.

-Fiscal and Monetary Discussion-

Come up with an original scenario that will show an economy in either contraction or expansion. Use the appropriate economic indicators to allow a classmate to be able to identify the phase your economy is in.


-Please let me know what phase the economy is in but don’t add that in the discussion so my classmates can guess for them selves

Answers

With regard to Fiscal and Monetary Discussion, in the past year, the country of Marland has experienced a surge in economic activity due to a boom in the technology industry.

What is the explanation for the above response?

As a result, Marland's gross domestic product (GDP) has increased by 5% and unemployment has decreased to 4.5%. However, this increase in economic activity has also led to an increase in inflation, with consumer prices rising by 3%.

In response, the central bank has raised interest rates to 3%, leading to a decrease in consumer spending and a slowdown in housing construction. The government has also increased taxes on luxury goods to combat inflation. These actions have resulted in a decrease in business investments, leading to a contraction in the economy.

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how many meters are in one hectometer

Answers

Answer:

100

Explanation:

Hope this helps!

Merry Christmas.

Answer:

Explanation:

100

An author writes a history book to be used in college courses. The copyright protection subsisting in that work applies to:

Answers

We should understand that copyright protection subsisting in his work applies to every other aspect of his work as well

The Copyright law is a law that protects owners of an original material from unauthorized duplication or use by another person.

The rights associated with a copyright protection includes:

right to make derivatives of a workright to reproduce a workright to lend a work.

In conclusion, the copyright protection subsisting in his work applies to every other aspect of his work as well.

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an overview and summary of the marketing plan. it should cover what is going to be discussed in greater detail later in the plan T/F

Answers

An executive summary should be the first section of your marketing plan. The summary provides a brief rundown of the plan's principal ideas. The statement is false.

Marketing plans might incorporate several marketing strategies for distinct marketing teams around the organisation working toward the same corporate objectives. The goal of a marketing plan is to systematically track strategies. This will help you keep on track and evaluate the success of your projects. By developing a marketing plan, you can consider each campaign's goal, buyer personas, budget, strategies, and deliverables. If you have all of this data in one place, managing a campaign will be less complicated. In addition, you'll discover what aspects of your plan are successful and unsuccessful.

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What are the remedial measures of unemployment in nepal?explain​

Answers

Measures to reduce unemployment: (1) Remedial measures: (a) Labour intensive techniques; (b) Population control; (c) Remove bottlenecks in the way of working of industries; (d) Encourage self-employment; (e) Policy of decentralisation; and (f) Restructuring the educational system.

The classical economists' conclusion that nominal income is determined by movements in the money supply rested on their belief that _____ could be treated as ____.
a) velocity; constant
b) velocity; variable
c) price level; constant
d) price level; slow-moving

Answers

The assumption that velocity could be viewed as constant underpinned the classical economics' conclusion that changes in the money supply drive nominal income. Option a is Correct.

The conclusion of the classical economists that changes in the money supply affect nominal income was based on their conviction that velocity PY/M could be viewed as relatively constant. The foundation of the quality theory of money is a constant V.

The quantity theory of money states that when money in an economy twice, prices will likewise double, all other things being equal. This implies that for the same amount of products and services, the consumer will spend twice as much. Option a is Correct.

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A government has started a public works program. The program uses tax
money to hire workers to repair roads, build dams, and install power lines.
The government has also reduced the taxes businesses pay for each worker
they employ.
Which macroeconomic goal is this government trying to achieve?
O A. Decreasing per capita GDP
O B. Reducing unemployment
O C. Reducing inflation
O D. Increasing GDP

Answers

Answer:

B. Reducing unemployment

Explanation:

The government, in this case, is using expansionary fiscal policies to create employment. Hiring people to build dams, repair roads, and install power lines leads to an increase in the government's spending in the economy. Consequently, a higher number of people will be working and earning. Increased earnings cause the aggregate demand to rise.

A reduction in business taxes reduces production costs. Businesses will be able to increase production, expand, and hire more workers when the cost of doing business is low.

Yvonne authorizes Warren to act as her agent and sell her vehicle. Yvonne tells Warren her vehicle has never been in an accident, and Warren, despite knowing Yvonne had been in an accident a year ago in the car, passes this information on to the buyer. Is Warren liable for the misrepresentation:__________

Answers

Answer:

no

Explanation:

because he does something that he don't know what will happen ..and do not research for someone who want to hers car

What types of insurance is David likely to get through his employer?

David has just joined a new company. His employer offers a number of different insurance policies as one of its employee benefits. For example, his employer’s (Blank)
insurance covers prescription drugs and immunizations. David will also be receiving (blank) insurance at no cost from his employer.
1. casualty, health, life
2. automobile, disability, renters

Answers

Answer:

1. health 2. disability

Explanation:

Answer:

health & disability

Explanation:

Suppose that the price of a sedan decreased from $20,000 to $15,000. This would cause amovement along the demand curve.

Answers

it would because it would be increasing sales

which federal reserve action can shift the aggregate demand curve to the left?

Answers

Explanation:

Contractionary Monetatary Policy

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