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What is the value of the swap in Problem per dollar of notional principal to the protection buyer if the credit default swap spread is 150 basis points?
Problem :
Suppose that the risk-free zero curve is flat at 7% per annum with continuous compounding and that defaults can occur halfway through each year in a new 5-year credit default swap. Suppose that the recovery rate is 30% and the default probabilities each year conditional on no earlier default is 3%. Estimate the credit default swap spread. Assume payments are made annually.
Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are shown on the time line below. Depreciation, salvage values, net operating workin..
A coupon bond that pays interest of $60 annually has a par value of $1,000, matures in 5 years, and is selling today at an $84.52 discount from par value. What is the yield to maturity on this bond?
A general contractor is buying construction equipment for grading with a purchase price of $140,000. The salvage price after 5 years is $16,000. The expected monthly benefit is $3,400. The dealership offered him to buy additional equipment with a tot..
Using the expectations theory, what is the yield on a 1-year bond, one year from now? Calculate the yield using a geometric average. What is the expected inflation rate in Year 1?
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.76 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be wort..
The Raven Co. has just gone public. Under a firm commitment agreement, Raven received 27.75 for each of the 5 million shares sold. The initial offering price was $30.53 per share, and the stock rose to $41.22 per share in the first few minutes of tra..
A boat leaves the entrance of a harbor and travels 57 miles on a bearing of N 11 E. How many miles north and how many miles east from the harbor has the boat traveled? A) 57 mi N, 57 mi E B) 56 mi N, 10.9 mi E C) 293.2 mi N, 11.1 mi E D) 10.9 mi N, 5..
If you deposit money today in an account that pays 6% annual interest, how long will it take to double your money? Round your answer to two decimal places.
A UCF graduate writes 22 checks per month and pays $0.25 per check. The bank pays the graduate 1% interest per annum, and he/she maintains an average monthly balance of $600. What is the graduate's net annual cost of maintaining the checking account ..
You observe the following: Security A and B, With Beta 2.0=A and 1.5=B, Expected Return A=28% B=25% what would the risk-free rate have to be if the two stocks are correctly priced? Please show me with formula or step by step.
Three years ago, the Morgan Co. issued 15-year, 6.5 percent semiannual coupon bonds at par. Today, the bonds are quoted at 100.6. What is this firm's pretax cost of debt?
Binomial Tree Farm’s financing includes $6.7 million of bank loans. Its common equity is shown in Binomial’s Annual Report at $6.84 million. It has 500,000 shares of common stock outstanding, which trade on the Wichita Stock Exchange at $16.3 per sha..
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