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On March 1, a firm plans to borrow $10 million for 90 days beginning on April 1(31 days in the future, which is the maturity of the call). It can currently borrow at LIBOR plus 200 basis points, and LIBOR is currently 4.5%. The firm buys an interest rate call option where LIBOR is the underlying, and the strike rate is 4%. The notional principal is $10 million, and D=90 days, which is also the length of the loan. The premium of the call is $5,000. Calculate the effective borrowing rates of the loan when LIBOR is 2.0%, 3.5%, 4.0%, 4.5% and 6%.
Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land six years ago for $5.5 million in
Explain the three alternative current operating assets financing policies in details. In your opinion, what is the best strategy for management with regard to financing curren
Garner-Wagner is considering investing in a project that requires an investment of $3,000,000. The project will generate a cash inflow of 500,000 per year for the next 5 years
An employee can name a charity as the sole beneficiary of group term life insurance and avoid any income tax on the economic benefit for coverage over what amount? Select one:
The common shares of Almond Beach Ltd., have a beta of 0.75, offer an expected return of 9%, and have an historical standard deviation of return of 17%, alternatively, the com
Mellott Corp. has an equity value of $13,430. Long-term debt is $8,650. Net working capital, other than cash, is $3,305. Fixed assets are $17,830 and current liabilities are $
You are given the following short-term interest rates in a Black-Derman-Toy binomial tree: r0 = 0.05, rd = 0.04, ru = 0.09, rdd = 0.06, ruu = 0.18, rddd = 0.04, ruud = 0.16. A
Consider a bond with coupon rate of 7% and a par value of $1,000. The maturity for this bond is greater than one year. Also assume that the required yield by the market for
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