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Social Science
Business
Chapter 4: Entrepreneurship
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Terms in this set (23)
Entrepreneur
Someone who starts and then runs a business
Franchise
The legal right to sell a company's goods or services in a particular area
Sole Proprietorship
A business that is completely owned by one person
Partnership
A business arrangement in which two or more people share ownership
Corporation
A business, chartered by a state, that legally operates apart from the owner(s)
Shareholders
The owners of a company who buy shares, or parts, of the company and earn a profit based on the number of shares they own
Business Plan
Specific information about a business's product(s), location, employees, organization, marketing plan, and competitors
Financial Plan
A description of a business's start-up costs, operating expenses, and other costs for its first few months of operation
Market Outlook
The potential for future sales
Goodwill
The loyalty of existing customers
Lease
A contract to use something for a specified period of time
Start-up Costs
The expenses involved in beginning a business
Operating Expenses
The costs of doing a business
Revenue
Income from sales
Gross Profit
The difference between the cost of a good or service and its selling price
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Verified questions
QUESTION
Suppose the inflation rate is expected to be 7% next year, 5% the following year, and 3% thereafter. Assume that the real risk-free rate, $r^{*}$, will remain at 2% and that maturity risk premiums on Treasury securities rise from zero on very short-term bonds (those that mature in a few days) to 0.2% for 1-year securities. Furthermore, maturity risk premiums increase 0.2% for each year to maturity, up to a limit of 1.0% on 5-year or longer-term T-bonds. a. Calculate the interest rate on 1-, 2-, 3-, 4-, 5-, 10-, and 20-year Treasury securities and plot the yield curve. b. Suppose a AAA-rated company (which is the highest bond rating a firm can have) had bonds with the same maturities as the Treasury bonds. Estimate and plot what you believe a AAA-rated company’s yield curve would look like on the same graph with the Treasury bond yield curve. (Hint: Think about the default risk premium on its long-term versus its short-term bonds.) c. On the same graph, plot the approximate yield curve of a much riskier lower-rated company with a much higher risk of defaulting on its bonds.
QUESTION
Avondale Aeronautics has perpetual preferred stock outstanding with a par value of $100. The stock pays a quarterly dividend of$1.00 and its current price is $45. a. What is its nominal annual rate of return? b. What is its effective annual rate of return?
QUESTION
Lourdes Corporation’s 12% coupon rate, semiannual payment, $1,000 par value bonds, which mature in 25 years, are callable 6 years from today at$1,025. They sell at a price of $1,278.56, and the yield curve is flat. Assume that interest rates are expected to remain at their current level. a. What is the best estimate of these bonds’ remaining life? b. If Lourdes plans to raise additional capital and wants to use debt financing, what coupon rate would it have to set in order to issue new bonds at par?
QUESTION
Six-month T-bills have a nominal rate of 2%, while default-free Japanese bonds that mature in 6 months have a nominal rate of 1.25%. In the spot exchange market, 1 yen equals $0.0081. If interest rate parity holds, what is the 6-month forward exchange rate?
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