Investments 10th edition solutions manual bodie

b. The coupon rate is 6.25% implying coupon payments of $62.50 annually or, more precisely, $31.25 semiannually. The divisor fell, which is always the case after one of the firms in an index splits its shares. 12. The after-tax yield on the corporate bonds is: 0.05 (1 – 0.30) = 0.035 = 3.50% Therefore, municipals must offer a yield to maturity of at
least 3.50%. 3. a. 2. d. Municipal bond interest is tax-exempt at the federal level and possibly at the state level as well. Real assets are assets used to produce goods and services. At t = 0, the value of the index is: (50 + 105 + 85)/3 = 80 At t = 1, the value of the index is: (55 + 100 + 90)/3 = 81.667 The rate of return is: (81.667/80) 1 = 2.08% b.

The cash is a financial asset that is traded in exchange for a real asset, inventory. If Microsoft issues new shares in order to pay Lanni, this would constitute the creation of new financial asset. Yes. Agency problems are conflicts of interest between managers and stockholders.
Equity has an indefinite life.

10. You would have to pay the ask price of: 161.1875% of par value of $1,000 = $1611.875 b. National wealth is a measurement of the real assets used to produce GDP in the economy. 7. The primary asset has a claim on the real assets of a firm, whereas a derivative asset provides a payoff that depends on the prices of a primary asset but not the
claim on real assets. Your annual dividend income would be: 77 $2.04 = $157.08 c. In selling 2,500 shares of stock for $125,000, Lanniis exchanging one financial asset for another. Chapter 2 - Asset Classes and Financial Instruments 2-2 6. Total market value at t = 0 is: ($9,000 + $10,000 + $20,000) = $39,000 Total market value at t = 1 is:
($9,500 + $9,000 + $22,000) = $40,500 Rate of return = ($40,500/$39,000) – 1 = 3.85% b. In the absence of a split, Stock C would sell for 110, so the value of the index would be: 245/3 = 81.666 with a divisor of 3. 11. 4. The loan is "destroyed" in the transaction, since it is retired when paid. After the split, stock C sells for 45. 6. 14.29% Full file at
�Full file at © 1996-2014, Amazon.com, Inc. a. No reproduction or distribution without the prior written consent of McGraw-Hill Education. SOLUTION MANUAL FOR ESSENTIALS OF INVESTMENTS 10TH EDITION BY BODIE COMPLETE DOWNLOADABLE FILE AT: 1. b. Equation (2.2) shows that the equivalent taxable yield is: r = r m /(1 – t
), so simply substitute each tax rate in the denominator to obtain the following: a. In paying off the IOU with $50,000,Lanniis exchanging financial assets. The cash Lanni receives is a financial asset. 8. No. The real estate in existence has not changed, only the perception of its value has. In this case, the yield to maturity is 2.113%. Investment bankers
are firms specializing in the sale of new securities to the public, typically by underwriting the issue. The difference should be expected since the business of financial institutions is to make loans that are financial assets. When the loan is repaid, the financial asset is destroyed but the real asset continues to exist. Asset allocation is the allocation of an
investment portfolio across broad asset classes. Software product*$70,000 Bank loan$50,000 Computers30,000 Shareholders’ equity 50,000Total$100,000 Total$100,000 *Value at cost Assets Liabilities & Shareholders’ Equity Full file at Copyright © 2017 McGraw-Hill Education.

The new financial asset created is Lanni's promissory note held by the bank.

or its affiliates Full file at Copyright © 2017 McGraw-Hill Education. For non-financial firms, the ratio is: 997,34$ 569,18$ = 0.5306 c. c. Therefore, we need to find the divisor (d) such that: 81.667 = (55 + 100 + 45)/d d = 2.449.

General Dynamics closed today at $64.69, which was $0.65 higher than yesterday’s price of $64.04 Full file at �Full file at Chapter 2 - Asset Classes and Financial Instruments 2-3 11. An investor buying this security today and holding it until it matures will earn an annual return of 2.113%. Ratio of real to total assets = 000,100$ 000,100$ = 1.0 c.
The loan is a financial asset that is created in the transaction.
In exchange Lanni receives a financial asset, 2,500 shares of Microsoft stock. The index remains unchanged because the return for each stock separately equals zero.
12.5% d. The cash paid by Lanni is the transfer of a financial assetto the software developer. When facing higher marginal tax rates, a high-income investor would be more inclined to invest in tax-exempt securities. Thus, there is the difference. Equity is a lower-priority claim and represents an ownership share in a corporation, whereas fixed-income
(debt) securityis a higher-priority claim but does not have an ownership interest. 5. After the Glass-Steagall Act was repealed in 1999, some commercial banks started transforming to “universal banks” which provide the services of both commercial banks and investment banks. Treasury bills are discount securities that mature for $10,000.
Commercial banks accept deposits and lend the money to other borrowers. The yield to maturity on a fixed income security is also known as its required return and is reported by The Wall Street Journal and others in the financial press as the ask yield. The act attempts to limit the risky activities in which the banks can engage and calls for stricter
rules for bank capital, liquidity, and risk management practices, especially as banks become larger and their potential failure becomes more threatening to other institutions. 13. Toyota creates a real asset — the factory. They can be addressed through corporate governance mechanisms, such asthe designof executive compensation, oversight by the
Board, and monitoring from the institutional investors. Financial assets are claims onreal assets or the income generated by them. The total before-tax income is $7. Lanni's IOU is the bank's financial asset. After the 70% exclusion for preferred stock dividends, the taxable income is: 0.30 $7 = $2.10 Therefore, taxes are: 0.30 $2.10 = $0.63 After-
tax income is: $7.00 – $0.63 = $6.37 Rate of return is: $6.37/$35.00 = 18.2% 10. Cash$70,000 Bank loan$50,000 Computers30,000 Shareholders’ equity 50,000Total$100,000 Total$100,000 Assets Liabilities & Shareholders’ Equity Ratio of real to total assets = 000,100$ 000,30$ = 0.3 b. Lannisells the software, which is a real asset, to Microsoft.
In return, Lanni gets a real asset, the completed software.
For commercial banks, the ratio is: 6.164,15$ 6.148$ = 0.0098 b. With the passage of the Dodd – Frank Wall Street Reform and Consumer Protection Act in 2010, Glass-Steagall was partially restored via the Volker Rule.
When it is in full production, it will have a high ratio of real assets. Fixed-income (debt) securitypays a specified cash flow at pre-contracted time intervals until the last payment on the maturity date. Students will learn in a later chapter how to compute both the price and the yield to maturity with a financial calculator. The price-to-earnings ratio is
9.31 and the price is $64.69. When the project "shuts down" and the firm sells it, the percentage of real assets to total assets goes down again because the product is again exchanged into financial assets. Financial assets are claims on those assets held by individuals. Full file at Copyright © 2017 McGraw-Hill Education. The financial asset value of
the claims on the real estate has changed, and thus the balance sheet of individual investors has been reduced. 10.00% b. Since it is not possible to trade in fractions of shares, you could buy 77 shares of GD. Security selection is the choice of specific securities within each asset class.
It also mandates increased transparency, especially in derivatives markets. All rights reserved. No financial assets are created or destroyed.Cash is simply transferred from one firm to another. The act seeks to unify and clarify the lines of regulatory authority and responsibility in government agencies and to address the incentive issue by forcing
employee compensation to reflect longer-term performance. Microsoft shares$125,000 Bank loan$50,000 Computers30,000 Shareholders’ equity 105,000Total$155,000 Total$155,000 Assets Liabilities & Shareholders’ equity Ratio of real to total assets = 000,155$ 000,30$ = 0.2 Conclusion: When the firm starts up and raises working capital, it will
be characterized by a low ratio of real to total assets. Real assets still exist, yet the value of the claims on those assets or the cash flows they generate do change.
The return on each stock is as follows: r A = (95/90) – 1 = 0.0556 r B = (45/50) – 1 = – 0.10 r C = (110/100) – 1 = 0.10 The equally weighted average is: [0.0556 + (-0.10) + 0.10]/3 = 0.0185 = 1.85% 13. 14. The bank loan is a financial liability for Lanni. 9.
The difference between these two answers reflects the difference between real and financial asset values. You could buy: $5,000/$64.69 = 77.29 shares. Passed in 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act proposes several mechanisms to mitigate systemic risk. The return is zero. 11.11% c. Therefore: $64.69/Earnings
per share = 9.3 Earnings per share = $6.96 d. Therefore, a specific T- bill price is simply the maturity value divided by one plus the semi-annual return: P = $10,000/1.045 = $9,569.38 9.