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**Question 1.**

- Sate whether these statements below are an example of primary market transaction or secondary market transaction.

- Apple Computer decides to issue additional stock with the assistance of its investment banker. An investor purchases some of the newly issued shares.
- IBM issues 2,000,000 shares of new stock and sells them to the public through an investment banker
- IBM issues 2,000,000 shares of existing stock to raise capital

- Briefly explain how ratios can be helpful as a manager, business owner and a shareholder?

**Question 2. **

- Suppose 1 year T-Bills currently yield 7.00% and the future inflation rate is expected to be constant at 3.20% per year. What is the real risk of return?
- Suppose the real risk-free rate is 2.50% and the future rate of inflation is expected to be constant at 4.10%. What rate of return would you expect on a 5 year treasury security, assuming the pure expectations theory is valid?

**Question 3.**

The real risk-free rate of interest, r*, is 3% and it is expected to remain constant over time. Inflation is expected to be 2% per year for the next 3 years and 4% per year for the next 5 years. The maturity risk premium is equal to 0.1 x t -1 %, where t = the bond’s maturity. The default risk premium for a BBB-rated bond is 1.3%

- What is the average expected inflation rate over the next 4 years?
- What is the yield on a 4-year treasury bond?
- What is the yield on a 4-year BBB rated corporate bond with a liquidity premium of 0.5%?
- What is the yield on an 8-year Treasury bond?
- What is the yield on an 8-year BBB rated corporate bond with a liquidity premium of 0.5%?
- If the yield on a 9-year Treasury bond is 7.3%, what does that imply about expected inflation in 9 years?

**Question 4.**

For 2015, Everyday Electronics reported $22.5 million of sales and $18 million of operating costs (including depreciation). The company has $15 million of total invested capital. Its after-tax cost of capital is 9%, and its federal-plus-state income tax rate was 35%. What was the firm’s economic value added (EVA), That is, how much value did management add to stockholders wealth during 2015?

**Question 5.**

- Dyl Inc.’s bonds currently sell for $1,040 and have a par value of $1,000. They pay a $65 annual coupon and have a 15-year maturity. What is their yield to maturity (YTM)?
- Radoski Corporation’s bonds make an annual coupon interest payment of 7.35%. The bonds have a par value of $1,000, a current price of $1,130 , and mature in 12 years. What is the yield to maturity on these bonds?

**Question 6.**

- Windsor Corporation just paid a dividend of $1.25 a share (that is D?= $1.25). The dividend is expected to grow 8% a year for the next three years and then at 4% a year thereafter. What is the expected dividend per share for each of the next five years?
- What will be the nominal rate of return on a perpetual preferred stock with a $100 par value, a stated dividend of 7% of par, and a current market price of $140?

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