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A company has issued floating-rate notes with a maturity of one year, an interest rate of LIBOR plus 125 basis points, and total face value of $50 million.
The company now believes that interest rates will rise and wishes to protect itself by entering into an interest rate swap. A dealer provides a quote on a swap in which the company will pay a fixed rate 6.5 percent and receive LIBOR. Interest is paid quarterly, and the current LIBOR is 5 percent.
Show all your calculations and explain in details.
(a) Indicate how the company can use a swap to convert the debt to a fixed rate.
(b) Calculate the first payment made by the company. Assume that all payments will be made on the basis of 90/360.
Halestorm Corporation’s common stock has a beta of 1.15. Assume the risk-free rate is 5 percent and the expected return on the market is 12.5 percent. Required: What is the company’s cost of equity capital?
The price of a 5-year semannual-coupon bond is $$131.5184. Its duration and convexity are 4.3476 and 20.5562, respectively. If interest rates go up by 1%, what will be the dollar change in the price of this bond using both duration and convexity to e..
You receive a credit card application from Shady Banks Savings and Loan offering an introductory rate of 3.3 percent per year, compounded monthly for the first six months, increasing thereafter to 18.2 percent compounded monthly. Assuming you transfe..
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His monthly mortgage payment is $875. What was the seeling price of the house?
The Au Natural Clothing Factory has changed its year-end from a calendar year-end to March 31, with permission from the IRS. The income for its short period from January 1 to March 31 is $24,000. Calculate the tax for this short period.
The CEO of the insurance company you work for sends back the firm’s proposed budget which you had drafted, asking you to explain how this budget supports the firm’s strategies and goals. Discuss how you might demonstrate that your proposed budget is ..
Explain what has happened to current assets and long-term assets. Explain the changes in the liabilities section of the balance sheet.
These are callable in 8 years at a call price of $540. Using semiannual compounding, what is the yield to call for these bonds?
Using a FUTA tax of .8%, SUTA of 10%, and FICA of 7.65%, compute the total payroll taxes.
A deposit of X is made into a fund which pays an annual effective interest rate of 6% for 10 years.
Consider three investments: Investment A, investment B and Investment C with the costs of 600, 500 dollars and 400 dollars respectively. Investment A will bring you a cash flow of 100, 200 and 300 at the end of years 1, 2 and 3 respectively.
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