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1. A bank can borrow or lend at LIBOR. Suppose that the six-month rate is 5% and the nine-month rate is 6%. The rate that can be locked in for the period between six months and nine months using an FRA is 7%. What arbitrage opportunities are open to the bank? All rates are continuously compounded.
2. An interest rate is quoted as 5% per annum with semiannual compounding. What is the equivalent rate with (a) annual compounding, (b) monthly compounding, and (c) con-tinuous compounding.
3. Consider an 8-month European put option on a Treasury bond that currently has 14.25 years to maturity. The current cash bond price is $910, the exercise price is $900, and the volatility for the bond price is 10% per annum. A coupon of $35 will be paid by the bond in 3 months. The risk-free interest rate is 8% for all maturities up to 1 year. Use Black's model to determine the price of the option. Consider both the case where the strike price corresponds to the cash price of the bond and the case where it corresponds to the quoted price.
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1. Suppose you take out a margin loan for $60,000. The rate you pay is an 8.6 percent effective rate. If you repay the loan in six months, how much interest will you pay?
Calculate the YEAR.
Suppose the current exchange rate between Germany and Japan is 0.02? ¥. The euro-denominated annual continuously compounded risk-free rate is 4% and the yen-denominated annual continuously compounded risk-free rate is 1%.
a) Compute net present value of both projects b) Should Big Shot invest? c) Which project should they choose?
Here are inflation rates and United State stock market and Treasury bill returns between 1929 and 1933:
You hold a diversified portfolio consisting of a $5,000 investment in each of 20 different common stocks. The portfolio beta is equal to 1.15.
By how much did the firm's net income exceed its free cash flow? 1. $66 2. $58 3. $54 4. $52 5. $53
Suppose you are going to receive $13,100 per year for six years. The appropriate interest rate is 8.0 percent.
Discuss the major capital budgeting methods used by corporations to evaluate projects. Why do many corporations continue to use the payback period method? Which method do you prefer? Explain why you prefer this method.
Evaluate the cumulative adjustment factor and determine the return since you bought the stock
What is the value of a share of Gamma Corperation sommon stock to an investor who requires a 20 % rate of return on their investments?
The investment will help generate additional revenue of $250,000.00 per year with a cost of $220,000.00 before depreciation. The company is in a 40% tax bracket. The cost for capital is 10%.
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