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1. The cash prices of 6-month and 1-year Treasury bills are 94.0 and 89.0. A 1.5-year bond that will pay coupons of $4 every 6 months currently sells for $94.84. A 2-year bond that will pay coupons of $5 every 6 months currently sells for $97.12. Calculate the 6-month, 1-year, 1.5-year, and 2-year zero rates.
2. ‘‘An interest rate swap where 6-month LIBOR is exchanged for a fixed rate of 5% on a principal of $100 million for 5 years involves a known cash flow and a portfolio of nine FRAs.'' Explain this statement.
If each of the positions below, if you were required to choose two major financial tools to focus on and become expert at, which would you choose? Explain your answers. Support your answers by providing at least one example of why your chosen tools a..
A bond that pays interest annually yields a rate of return of 8.00 percent. The inflation rate for the same period is 3 percent. What is the real rate of return on this bond?
Explain the rationale behind the idea that equity is a call option on a firm's assets. In other words, explain why equity ownership of a firm is equivalent to owning a call option on the firm’s assets. Next, explain what it would mean for shareholder..
Assume that your parents wanted to have $160,000 saved for college by your 18th birthday and they started saving on your first birthday. They saved the same amount each year on your birthday and earned 11.5% per year on their investments. How much wo..
McKenna Sports Authority is getting ready to produce a new line of gold clubs by investing $1.85 million. The investment will result in additional cash flows of $525,000, $832,500, and $1,215,000 over the next three years. What is the payback period ..
How are the operating and cash cycles of the firm different? Why are they important? Why is liquidity important? What strategies can a firm use to optimize its cash cycle? Discuss different forms of A/R acceleration.
Project Selection Midwest Water Works estimates that its WACC is 10.5%. The company is considering the following capital budgeting projects: Assume that each of these projects is just as risky as the firm’s existing assets and that the firm may accep..
Suppose Powers Ltd. just issued a dividend of $2.63 per share on its common stock. The company paid dividends of $2.13, $2.20, $2.37, and $2.47 per share in the last four years. If the stock currently sells for $82, what is your best estimate of the ..
What is operating leverage? How if at all, is it similar to financial leverage? If a firm has high operating leverage, would you expect it ot have high or low financial leverage? explain your reasoning?
Assume that the FTSE100 stock index level is 5000, and there is a futures contract on the index maturing one year from today. Index stocks will pay dividends over the life of the contract, and these dividends can be reinvested whenever they are recei..
If you deposited the following amount per month (letters in your last name X $80) from your pay check from the time you graduate from school until you retire (at age 75) and your employer contributed an extra 6%, how much wealth would you have accumu..
Assume that the market is in equilibrium. MY stock is currently selling for $30 per share. The stock is expected to pay a $3 dividend at the end of the year. The stock’s dividend is expected to grow at a constant rate of 7 percent per year forever. T..
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