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Suppose that the LIBOR yield curve is flat at 8% (with continuous compounding). The payoff from a derivative occurs in 4 years. It is equal to the 5-year rate minus the 2-year rate at this time, applied to a principal of $100 with both rates being continuously compounded. (The payoff can be positive or negative.)
Calculate the value of the derivative. Assume that the volatility for all rates is 25%.
What difference does it make if the payoff occurs in 5 years instead of 4 years? Assume all rates are perfectly correlated.
The firm recently paid a dividend of $2 per share of common stock, and the investors expect the divid end to grow indefinitely at a constant rate of 10 percent per year. The common stock of Ross is currently selling at $40.
Discuss the role of Special Purpose Entities (SPEs) in the fall of Enron
frank Zanca is considering three different investments that his broker has offered to him. the different cash flows are as follows: end of the year A B C
Graser Trucking has $20 billion in assets, and its tax rate is 30%. Its basic earning power (BEP) ratio is 13%, and its return on assets (ROA) is 3%. What is its times-interest-earned (TIE) ratio
MS Energy has a target capital structure of 30% debt, 10% preferred stock, and 60% common equity. The company's after-tax cost of debt is 5%, its cost of preferred stock is 8%, and its cost of retained earnings is 12%.
What must the rate be less than to be worth it to incur a compensating balance of $1,200 in order to get a 1.5-percent lower interest rate on a 1-year, pure discount loan of $100,000
What amount of capital will you purchase? Why? - What amount of capital would you purchase if there were a 25% tax rate on cash earnings minus labor costs?
You are offered an investment with returns of $ 2,440 in year 1, $ 3,767 in year 2, and $ 3,170 in year 3. The investment will cost you $ 5,422 today. If the appropriate Cost of Capital (quoted interest rate) is 6.6%,
joe's company's bonds have 10 years remaining to maturity. Interest is paid annually, the bonds have a $1000 par value, and the cooupon interest rate is 6%. the bonds have a yield to maturity of 9%.
Swings in foreign direct investment flows into and out of emerging markets contribute to exchange rate volatility. Describe one concrete historical example of this phenomenon during the last 10 years.
As a jewelry store manager, you want to offer credit, with interest on outstanding balances paid monthly. To carry receivables, you must borrow funds from your bank at a nominal 6%, monthly compounding.
We are evaluating a project that costs $1,582,000, has a seven-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project.
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