Question 14 Suppose the real risk-free rate is 2.50% and the future rate of infl

Question

Question 14

1. Suppose the real risk-free rate is 2.50% and the future rate of inflation is expected to be constant at 3.80%. What rate of return would you expect on a 5-year Treasury security, assuming the pure expectations theory is valid? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average. 6.30% 5.80% 7.25% 5.17% 7.18%
   
   

   Question 15

   1. Following information applies to the following questions.
      
      The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.
      
      Balance Sheet (Millions of $) Assets 2010 Cash and securities $1,290 Accounts receivable 9,890 Inventories 13,760 Total current assets $24,940 Net plant and equipment $18,060 Total assets $43,000 Liabilities and Equity Accounts payable $8,170 Notes payable 6,020 Accruals 4,730 Total current liabilities $18,920 Long-term bonds $8,815 Total debt $27,735 Common stock $5,805 Retained earnings 9,460 Total common equity $15,265 Total liabilities and equity $43,000 Income Statement (Millions of $) 2010 Net sales $51,600 Operating costs except depreciation 48,246 Depreciation 903 Earnings bef interest and taxes (EBIT) $2,451 Less interest 927 Earnings before taxes (EBT) $1,524 Taxes 533 Net income $990 Other data: Shares outstanding (millions) 500.00 Common dividends (millions of $) $346.67 Int rate on notes payable & L-T bonds 6.25% Federal plus state income tax rate 35% Year-end stock price $23.77
      
      What is the firm's BEP? 5.81% 5.59% 5.70% 6.44% 4.85%
      
      
      
      You just deposited $2,000 in a bank account that pays a 4.0% nominal interest rate, compounded quarterly. If you also add another $5,000 to the account one year (4 quarters) from now and another $7,500 to the account two years (8 quarters) from now, how much will be in the account three years (12 quarters) from now?
2. 
   

1. Suppose the real risk-free rate is 2.50% and the future rate of inflation is expected to be constant at 3.80%. What rate of return would you expect on a 5-year Treasury security, assuming the pure expectations theory is valid? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average. 6.30% 5.80% 7.25% 5.17% 7.18%
   
   

   Question 15

   1. Following information applies to the following questions.
      
      The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.
      
      Balance Sheet (Millions of $) Assets 2010 Cash and securities $1,290 Accounts receivable 9,890 Inventories 13,760 Total current assets $24,940 Net plant and equipment $18,060 Total assets $43,000 Liabilities and Equity Accounts payable $8,170 Notes payable 6,020 Accruals 4,730 Total current liabilities $18,920 Long-term bonds $8,815 Total debt $27,735 Common stock $5,805 Retained earnings 9,460 Total common equity $15,265 Total liabilities and equity $43,000 Income Statement (Millions of $) 2010 Net sales $51,600 Operating costs except depreciation 48,246 Depreciation 903 Earnings bef interest and taxes (EBIT) $2,451 Less interest 927 Earnings before taxes (EBT) $1,524 Taxes 533 Net income $990 Other data: Shares outstanding (millions) 500.00 Common dividends (millions of $) $346.67 Int rate on notes payable & L-T bonds 6.25% Federal plus state income tax rate 35% Year-end stock price $23.77
      
      What is the firm's BEP? 5.81% 5.59% 5.70% 6.44% 4.85%
      
      
      
      You just deposited $2,000 in a bank account that pays a 4.0% nominal interest rate, compounded quarterly. If you also add another $5,000 to the account one year (4 quarters) from now and another $7,500 to the account two years (8 quarters) from now, how much will be in the account three years (12 quarters) from now?
2. 
   

Suppose the real risk-free rate is 2.50% and the future rate of inflation is expected to be constant at 3.80%. What rate of return would you expect on a 5-year Treasury security, assuming the pure expectations theory is valid? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average. 6.30% 5.80% 7.25% 5.17% 7.18%

Question 15

1. Following information applies to the following questions.
   
   The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.
   
   Balance Sheet (Millions of $) Assets 2010 Cash and securities $1,290 Accounts receivable 9,890 Inventories 13,760 Total current assets $24,940 Net plant and equipment $18,060 Total assets $43,000 Liabilities and Equity Accounts payable $8,170 Notes payable 6,020 Accruals 4,730 Total current liabilities $18,920 Long-term bonds $8,815 Total debt $27,735 Common stock $5,805 Retained earnings 9,460 Total common equity $15,265 Total liabilities and equity $43,000 Income Statement (Millions of $) 2010 Net sales $51,600 Operating costs except depreciation 48,246 Depreciation 903 Earnings bef interest and taxes (EBIT) $2,451 Less interest 927 Earnings before taxes (EBT) $1,524 Taxes 533 Net income $990 Other data: Shares outstanding (millions) 500.00 Common dividends (millions of $) $346.67 Int rate on notes payable & L-T bonds 6.25% Federal plus state income tax rate 35% Year-end stock price $23.77
   
   What is the firm's BEP? 5.81% 5.59% 5.70% 6.44% 4.85%
   
   
   
   You just deposited $2,000 in a bank account that pays a 4.0% nominal interest rate, compounded quarterly. If you also add another $5,000 to the account one year (4 quarters) from now and another $7,500 to the account two years (8 quarters) from now, how much will be in the account three years (12 quarters) from now?

Suppose the real risk-free rate is 2.50% and the future rate of inflation is expected to be constant at 3.80%. What rate of return would you expect on a 5-year Treasury security, assuming the pure expectations theory is valid? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average. 6.30% 5.80% 7.25% 5.17% 7.18%

1. Following information applies to the following questions.
   
   The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.
   
   Balance Sheet (Millions of $) Assets 2010 Cash and securities $1,290 Accounts receivable 9,890 Inventories 13,760 Total current assets $24,940 Net plant and equipment $18,060 Total assets $43,000 Liabilities and Equity Accounts payable $8,170 Notes payable 6,020 Accruals 4,730 Total current liabilities $18,920 Long-term bonds $8,815 Total debt $27,735 Common stock $5,805 Retained earnings 9,460 Total common equity $15,265 Total liabilities and equity $43,000 Income Statement (Millions of $) 2010 Net sales $51,600 Operating costs except depreciation 48,246 Depreciation 903 Earnings bef interest and taxes (EBIT) $2,451 Less interest 927 Earnings before taxes (EBT) $1,524 Taxes 533 Net income $990 Other data: Shares outstanding (millions) 500.00 Common dividends (millions of $) $346.67 Int rate on notes payable & L-T bonds 6.25% Federal plus state income tax rate 35% Year-end stock price $23.77
   
   What is the firm's BEP? 5.81% 5.59% 5.70% 6.44% 4.85%
   
   
   
   You just deposited $2,000 in a bank account that pays a 4.0% nominal interest rate, compounded quarterly. If you also add another $5,000 to the account one year (4 quarters) from now and another $7,500 to the account two years (8 quarters) from now, how much will be in the account three years (12 quarters) from now?

Following information applies to the following questions.

The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.

Balance Sheet (Millions of $) Assets 2010 Cash and securities $1,290 Accounts receivable 9,890 Inventories 13,760 Total current assets $24,940 Net plant and equipment $18,060 Total assets $43,000 Liabilities and Equity Accounts payable $8,170 Notes payable 6,020 Accruals 4,730 Total current liabilities $18,920 Long-term bonds $8,815 Total debt $27,735 Common stock $5,805 Retained earnings 9,460 Total common equity $15,265 Total liabilities and equity $43,000 Income Statement (Millions of $) 2010 Net sales $51,600 Operating costs except depreciation 48,246 Depreciation 903 Earnings bef interest and taxes (EBIT) $2,451 Less interest 927 Earnings before taxes (EBT) $1,524 Taxes 533 Net income $990 Other data: Shares outstanding (millions) 500.00 Common dividends (millions of $) $346.67 Int rate on notes payable & L-T bonds 6.25% Federal plus state income tax rate 35% Year-end stock price $23.77

What is the firm's BEP? 5.81% 5.59% 5.70% 6.44% 4.85%



You just deposited $2,000 in a bank account that pays a 4.0% nominal interest rate, compounded quarterly. If you also add another $5,000 to the account one year (4 quarters) from now and another $7,500 to the account two years (8 quarters) from now, how much will be in the account three years (12 quarters) from now? Following information applies to the following questions.

The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.

Balance Sheet (Millions of $) Assets 2010 Cash and securities $1,290 Accounts receivable 9,890 Inventories 13,760 Total current assets $24,940 Net plant and equipment $18,060 Total assets $43,000 Liabilities and Equity Accounts payable $8,170 Notes payable 6,020 Accruals 4,730 Total current liabilities $18,920 Long-term bonds $8,815 Total debt $27,735 Common stock $5,805 Retained earnings 9,460 Total common equity $15,265 Total liabilities and equity $43,000 Income Statement (Millions of $) 2010 Net sales $51,600 Operating costs except depreciation 48,246 Depreciation 903 Earnings bef interest and taxes (EBIT) $2,451 Less interest 927 Earnings before taxes (EBT) $1,524 Taxes 533 Net income $990 Other data: Shares outstanding (millions) 500.00 Common dividends (millions of $) $346.67 Int rate on notes payable & L-T bonds 6.25% Federal plus state income tax rate 35% Year-end stock price $23.77

What is the firm's BEP? 2010 $1,290 9,890 13,760 $24,940 $18,060 $43,000 $8,170 6,020 4,730 $18,920 $8,815 $27,735 $5,805 9,460 $15,265 $43,000 2010 $51,600 48,246 903 $2,451 927 $1,524 533 $990 500.00 $346.67 6.25% 35% $23.77 5.81% 5.59% 5.70% 6.44% 4.85%


6.30% 5.80% 7.25% 5.17% 7.18%

Explanation / Answer

First answer

r = r* + IP + DRP + LP + MRP

            r = 2.50% + 3.80% = 6.30%

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.