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You are a pension fund manager who anticipates having to pay out 8 percent (paid semi-annually) on $100 million for the next seven years. You currently hold $100 million of a floating-rate note that pays LIBOR þ 2 1/2 percent.
You view this as an attractive investment but realize that if LIBOR falls below 5 1/2 percent, you will not have enough cash to make your fixed payments.
You arrange a swap with a dealer who agrees to pay you 6 percent fixed, while you pay it LIBOR.
Determine your cash flow as a percent of the notional principal at each payment date under this arrangement. Assume for simplicity that each period is 180 days and that there are 360 days in the year.
Consider following strategy: Write both a put and a call on Tesla stock with strike prices of $35. The price of the call and put are $3 and $5 respectively. Draw the payoff di
A mutual fund manager has a $20 million portfolio with a beta of 1.5. The risk-free rate is 3.5%, and the market risk premium is 6.5%. The manager expects to receive an additi
Speedy Delivery Systems can buy a piece of equipment that is anticipated to provide an 11 percent return and can be financed at 6 percent with debt. Compute the weighted avera
Bonds mature in 13 years. The bonds have a face value of $1,000 and an 9% coupon rate, paid semi-annually. The price of the bonds is $1,150. Bonds are callable in five years a
TJ Industries has 7 million shares of common stock outstanding with a market price of $20.00 per share. The company also has outstanding preferred stock with a market value of
Your portfolio allocates equal funds to the DW Co, and woodpecker, inc, DW Co, stock has an annual return mean and standard deviation of 10 percent and 33 percent, respectivel
You are trying to value Zombie Games Inc,, a company that manufactures games for the major game systems. The firm generated $ 30 million as operating profit (EBIT) in the most
If you knew a bond would pay you $50 every year for 10 years and, at the end of the 10 years, you’d also receive a $1,000 payment, how much should you pay to purchase the bond
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