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1. Gomez Electronics needs to arrange financing for its expansion program. Bank A offers to lend Gomez the required funds on a loan in which interest must be paid at the end of each month, and the stated nominal rate is 12.00% per year. Bank B offers to lend Gomez the required funds on a loan in which interest is continuously compounded and the stated nominal rate is 11.95% per year. Bank C offers to lend Gomez the required funds on a loan in which interest must be paid semi-annually, and the stated nominal rate is 12.10% per year.
From which of the 3 banks should Gomez obtain financing?
2. The interest rates in Canada and the United States are 6% and 5% per annum, respectively, with continuous compounding. The spot price of the Canadian dollar is $0.8000. The forward price for a contract deliverable in one year is $0.7900.
Does interest rate parity exist? If it does exist, then show why it exists. If interest rate parity does not exist, then show whether covered interest arbitrage is possible for Canadians or Americans. If covered interest arbitrage is possible, what is the annual rate of return with continuous compounding?
Prepare a report for the managing director both outlining the theoretical arguments and explaining the real-world influences on the gearing levels of firms.
State the intrinsic value and the speculative premium for the call and put options. Why is the speculative premium so small for each option - Use the Black-Scholes OPM to find C.
Calculate the value of your bond relative to this interest rate using equation 11.2 in the text. Assume that i = 5%. Is your bond selling for a premium or at a discount based on your calculation?
Use Runge-Kutta method to answer the solution.
The trade is performed over one week-How do the results change under these various scenarios? Discuss your results.
Calculate the NPV and IRR for the project from the standpoint of the parent company. What are your recommendations for the proposal?
Recalculate the NPV assuming the machine press can only be sold for $45,000 at the end of year four. Does this change have an impact on their decision?
Discuss qualitatively how you might have incorporated the likely growth of digital photography in the sales projections developed above? (Remember hindsight is 20-20.)
Ratio Analysis - Calculate the current ratio, quick ratio, cash to current liabilities ratio, over a two-year period. Discuss and interpret the ratios that you calculated
Calculate the required investment in NOWC for the three years of the project. Use these estimates of NOWC to calculate the Cash Flow from NOWC.
Before entering a formal agreement, investment banks carefully investigate the companies whose securities they underwrite; this is especially true of the issues of firms going public for the first time.
Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $12 million, of which 75% has been depreciated. The used equipment can be sold today for $4 million, and its tax rate is 40%. What is the equipment's ..
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