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In each of the following cases, indicate whether an interest rate cap, floor, collar, or reverse collar is an appropriate position for a hedge. Recommend a specific position.
a. A bank loan customer wants to borrow at a fixed 8 percent rate and the bank only lends at floating rates.
b. A bank has agreed to pay a large depositor a fixed 1.5 percent on balances over the next three years regardless of rate moves. The bank expects rates to fall on similar deposits over this period.
c. Your bank owns adjustable rate mortgages (ARMs) that are priced at three month LIBOR plus 1 percent. There is an annual cap on the allowable rate increase equal to a maximum of 1 percent a year. Thus, if LIBOR rises by 3 percent, the bank can raise the ARM rate just 1 percent. How can the bank effectively remove this cap?
Genoa ltd is about to start a new project that will have a Net Present Value of $100 million. The stock currently trades at $105 and there are 2,000,000 shares outstanding. In order to start the project the company needs to raise $400,000,000 in new ..
Chris invested $150,000 17 months ago. Currently the investment is worth $180,000. Chris knows that the investment paid interest monthly, but he does not know what yield on his investment. What is Chris's annual percentage return (APR) and EAR?
You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.05 and the total portfolio is equally as risky as the market, what must the beta be for the other stock in your portfolio?
Companies raise capital by issuing new securities in secondary markets. Preferred dividend payments are fixed amounts paid on a regular basis. Preferred stock with no fixed maturity can be valued using the present value of a perpetuity formula.
What is the right price for a stock? Is it book value, liquidation value or simply its market price at a given moment of time? Would you value a privately-owned company where there is no market value differently than a publicly owned company where th..
Which of the following would lower the sum of the present values of expected cash flows?
You have a U.S. Treasury bill with 112 days to maturity quoted at a discount yield of 3.82 percent. Assume a $1 million face value. What would the bond equivalent yield?
A new six speed automatic transmission for automobiles offers an estimated 4% improvement in fuel economy compared to traditional four speed transmissions. If a four speed transmission car averages 30 MPG and gasoline costs $4.00 per gallon, how much..
375 - 4 dqs need to be answered today by 4pm est. on time work no plagarism 275 word count for each question. please
There are at least three major areas that affect financial decisions. Life situations such as income, age, household size, and health. What are some of the social and economic factors that have increased the importance of personal financial planning ..
You would like to have $43,440for the down payment on a house you plan to buy five years after you graduate. If your investments earn 3.3% APR compounded monthly, how much do you have to invest each month, starting next month, to meet your investment..
“Is it ethical for large firms to unilaterally lengthen their payables periods, particularly when dealing with smaller suppliers? Why or Why not?”
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