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Suppose that a bank has $10 billion of one-year loans and $30 billion of five year loans. These are financed by $35 billion of one-year deposits and $5 billion of five-year deposits. The bank has equity totaling $2 billion and its return on equity is currently 12%. Estimate what change in interest rate next year would lead to the bank's return on equity being reduce to zero. Assume that bank is subject to a tax rate of 30%.
Curly’s Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $41,000 per year forever. Assume the required return on this investment is 6.6 percent. How much will you pay for the policy?
The Trektronics store begins each week with 220 phasers in stock. This stock is depleted each week and reordered. The carrying cost per phaser is $17 per year and the fixed order cost is $32. What are the current total carrying costs? What are the cu..
The current spot rate is C$1.379 and the one-year forward rate is C$1.319. The nominal risk-free rate in Canada is 4 percent while it is 8 percent in the U.S. Using covered interest arbitrage you can earn an extra _____ profit over that which you wou..
Which of the following is a not a correct statement about financial statements? Current assets refer to mostly liquid assets (financial capital) and inventory. Non-current assets refer to mostly fixed assets (physical capital) such as plant, equipmen..
The Bovespa (Brazilian Equity Index) is at 15,000. The dividends on the Index last year were 5% of the Index value. Analysts expect them to grow at 15% a year in real terms for next 5 years. After the 5th year, the growth is expected to drop to 5% in..
A Treasury security carries a fixed 3 percent annual coupon rate and matures in exactly two years. The Treasury is currently priced at $ 10,000 par value to yield 3 percent to maturity. Assume that you can buy the bond and strip the coupons and final..
Let s(0)= 120 dollars and let U=0.2, D= -0.1, R=0.1. Consider a call option with a strike price X=120 and exercise time T =2. Find the option price and the replicating strategy.
You are evaluating a proposed expansion of an existing subsidiary located in Switzerland. The cost of the expansion would be SF 21 million. The cash flows from the project would be SF 5.9 million per year for the next five years. The dollar required ..
Carlsbad Corporation’s sales are expected to increase from $% million in 2016 to $6 million in 2017, or by 20%. Its assets totaled $3 million at the end of 2016. Carlsbad is at full capacity, so its asts must grow in proportion to projected sales. At..
When converting annual data to daily data or vice versa in these problems, assume there are 365 days per year. Suppose that, as the result of a recession, annual credit sales decline by 10 percent to $18 million, and customers delay their payments to..
straight supply ltbrgt ltbrgtstraight supply is a major supplier of medical components to large pharmaceutical
The current price of a stock is $15. In 6 months, the price will be either $19 or $11. The annual risk-free rate is 3%. Find the price of a call option on the stock that has an strike price of $12 and that expires in 6 months. (Hint: Use daily compou..
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