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Problem:
Banks are net lenders, when they have excess funds, or net borrowers, when they have future deficits. As any lender or borrower, they cannot eliminate interest rate risk. A variable borrower faces the risk of interest rate rises, whilst a fixed rate borrower faces the risk of paying a fixed rate above declining rates. The exposure of the lender is symmetrical. The consequence is that there is no way to neutralize interest rate risk.
(i) What do you understand by the terms? (a) Interest rate gaps (b) Liquidity Gaps (c) Term structure of interest rates
(ii) Explain how derivatives can be used to alter interest rate exposures and make interest income independent of rates.
Question: (a) i. Expected loss= Exposure amount* probability of default* loss given default ii. Positive covenants= covenants that showing the direction to a company. P
Calculating Cost of Equity. Bohannon Corporation''s common stock has a beta of 1.10. If the risk-free rate is 4.5% and the expected return on the market is 12%, what is the company
Question: (a) Discuss the concept of financial gearing and its implications for share price maximisation. (b) A firm has both, a current and a target debt-equity ratio of 0.
Preview division divides M proportional to preview demand, i.e., each SKU n 2N gets fraction This method is included because it is used by the case company, in combination
Problem (a) The yields to maturity on five zero-coupon bonds are given below: Years to Maturity Yield (%)
why do investors pay attention to bond ratings?
Table gives the average MAPE, again for all SKUs with positive preview demand together (overall) and also per preview demand class. We remark that despite of the large differences
Question : (a) What are the three broad categories of buyers and sellers in the financial markets? (b) Differentiate between the primary and the secondary financial marke
Solution of the Black-Scholes model is obtained through a transformation into a heat equation. The general one-dimensional heat equation is given by where α > 0 is a consta
Part II The cost of equity (discount rate) can also be determined by using the Capital Asset Pricing Model (CAPM). Calculating the cost of equity using the CAPM model is often mor
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