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Three years ago, you entered into a five-year interest rate swap agreement by agreeing to pay a fixed rate of 7 percent in exchange for six-month LIBOR. If your counterparty were to default today when the fixed rate on a new two-year swap is 6.5 percent, would you experience an economic loss? Explain. 6. The Board of Bontemps International (BI) will substantially increase the company's defined-benefit pension fund's allocation to international equities in the future. However, the board wants to retain the ability to reduce temporarily this exposure without making the necessary transactions in the cash markets. You develop a way to meet the board's condition: BI enters into a swap arrangement with Bank A for a given notional amount and agrees to pay the EAFE (Europe, Australia, and Far East) Index return (in U.S. dollars) in exchange for receiving the LIBOR interest rate plus 0.2 percent (20 basis points). On the same notional amount, BI arranges another swap with Bank B under which BI receives the return on the S&P 500 Index (in U.S. dollars) in exchange for paying the interest rate on the U.S. Treasury bill plus 0.1 percent (10 basis points). Both swaps would be for a one-year term. From BI's perspective, identify and briefly describe (a) the major risk that this transaction would eliminate, (b) the major risk that this transaction would not eliminate (i.e., retain), and (c) three risks that this transaction would create. 7. A pension plan is currently underfunded by about $400 million. This situation will be resolved soon when the plan sponsor issues a $400 million private placement two-year floater bond that will be placed into the plan under a stipulation that it will be held to maturity. This bond will carry an interest rate of 50 basis points (or 0.5 percent) above the rate of U.S. Treasury bills. The actual, as well as desired, asset allocation is 50 percent bonds and 50 percent domestic equities. When the bond is added, the portfolio will become significantly overweighted in fixed-incomeinstruments. In addition, the overall duration will be decreased for the next two years. When the bond matures, the proceeds can be used to buy equities and liquid bonds with longer maturities. One Board member has suggested that futures or swaps could be used to keep the portfolio allocation in line with the desired asset allocation during the two-year period before the floater's maturity. a. Describe the transactions needed to restore the desired 50 percent/50 percent portfolio allocation using each of the following two derivative instruments: (1) futures, and (2) swaps. b. Discuss one advantage and one disadvantage of using futures instead of swaps to implement this strategy.
A company is evaluating its dividend policy. Selected data for the company are shown below. What are the company's options for raising the money needed for the capital budget?
To what extent should investors put their trust in these financial statements and what measures could be taken to improve the integrity of these statements?
A Corporation is consturcting its MCC schedule. Its target capital structure is 20 percent debt, 20 percent preferred stock, and 60% common equity. Its bonds have a 12% coupon, paid semiannually, a current maturity of twenty years and sell for $1K.
Describe the five principles of crisis action planning in organizational crisis management.
Ambrin Corp. expects to receive $2,000 per year for 10 years and $3,500 per year for next ten years. What is the present value of this 20 year cash flow. Employ a 11% discount rate.
Will an exclusion result in partial recovery? Illustrate your answer to the previous two questions with examples from the HO.
A corporation with sales of $500,00 has average inventory of $200,000. The Company average for inventory turnover is four times a year.
Mary and Joe would like to save up $10,000 by the end of 3 years from now to buy new furniture for their home. They currently have $1,500.
The M&M Company wishes to sell 100,000 units of its new product at $15 apiece. The variable cost is $12. The company has an operating expense of $200,000.
Discuss and explain the form or structure of the organization you currently work for or one you worked for in the past. Discuss why it it best suited for the conduct of its business.
Determine the relative advantages and disadvantages of a conservative asset financing policy and an aggressive asset financing policy?
Compute a fair rate of return for Intel common stock, which has 1.2 beta. The risk-free rate is 6 percent, and the market portfolio (New York Stock Exchange stocks) has expected return of 16 percent.
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