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Permian Commercial Bank wants to borrow $50 million for a period of three years, starting one year from today, because it anticipates lending to a company that will begin constructing a gas processing plant one year from today. The bank’s CFO proposes that the bank borrow by means of buying and selling zeros, in effect, creating a synthetic loan by which it can borrow. Assume that the one-year zero rate is 3.3%, the two-year zero rate is 3.86%, the three-year zero rate is 4.44%, and the four-year zero rate is 5.1%. All rates are annualized and continuously compounded. At what rate will the bank be able to borrow if it follows the proposal of its CFO?
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Light Sweet Petroleum, Inc., is trying to evaluate a generation project with the following cash flows: Year Cash Flow 0 –$ 38,900,000 1 62,900,000 2 – 11,900,000 a-1 What is the NPV for the project if the company requires a return of 11 percent? This..
The current market price of Canadian Fire Sale Corp. equity is $30 per share. Analysts estimate that Canadian Fire Sale will report earnings-per-share (EPS_1) of $2.50 in one year. The required return on Canadian Fire Sale shares is 10 percent. Calcu..
What are the two definitions of cash, and why do corporate treasurers often use the second definition?
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Compute Macaulay and modified durations for the following bonds: a 5-year bond paying annual coupons of 3.322% and selling at par. an 8-year bond paying semi annual coupons with a coupon rate of 9% and a yield of 8%
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Heymann Company bonds have 6 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 8%. What is the yield to maturity at a current market price of. You would buy the bond as long as the yield to ..
The cost of the truck is $18,000 and he is approved for an 8% loan but can choose to finance the loan for either 48 or 60 months. What will be the additional cost if he chooses the 60 month term instead of 48 months? You can assume that he can afford..
Stacey would like to have $1 million available to her at retirement.- If she makes contributions of $300 per month, will she reach her goal when she retires in 30 years?
Assume the Black-Scholes framework. The continuously compounded risk-free interest rate is r is unknown, but for a non-dividend paying stock S we know: Calculate r
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