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A company has derivatives transactions with Banks A, B, and C that are worth +$20 million, -$15 million, and -$25 million, respectively, to the company. How much margin or collateral does the company have to provide in each of the following two situations?
a) The transactions are cleared bilaterally and are subject to one-way collateral agreements where the company posts variation margin but no initial margin. The banks do not have to post collateral.
b) The transactions are cleared centrally through the same CCP and the CCP requires a total initial margin of $10 million.
Busters Ice Cream has 2,500 bonds outstanding that are selling for $1,020 each and yielding a pretax 7.2 percent. There 60,000 shares of common stock outstanding with a beta of 1.3 and a market price of $56 a share. The risk-free rate is 4 percent, t..
What is the value of a bond that has a par value of $1,000, a coupon rate of 17.65 percent (paid annually), and that matures in 4 years? Assume a required rate of return on this bond is 14.40 percent.
Bank of Land lends you money today but requires no payments for 3 years. However, during this interest deferred period the loan accumulated interest at 6% rate, compounded quarterly. The bank amortizes the loan over five year period, requiring quarte..
Explain what capital structure is. Find two publicly traded companies and compare and contrast their capital structures.
At year-end 2013, Wallace Land scaping’s total assets were $1.7 million and its accounts payable were $360,000. Sales, which in 2013 were $2.4 million, are expected to increase by 20% in 2014. Total assets and accounts payable are proportional to sal..
Carter Corporation's sales are expected to increase from $5 million in 2012 to $6 million in 2013, or by 20%. Its assets totaled $4 million at the end of 2012. Carter is at full capacity, so its assets must grow in proportion to projected sales. Unde..
What is the value of a perpetuity that pays $100 every 6 months forever? The discount rate quoted on an APR basis is 6.5%.
Can any ratio or combination of ratios predict a company's long-term viability? Can you think of an example whereby one ratio incorrectly looks "good" only because another ratio is "bad"?
Using a 5% discount rate, calculate the Net Present Value, Payback, Profitability Index, and IRR for each of the investment projects below. Assuming a budget of $2,000,000 what are your recommendations for the above problem? Explain.
Diversification occurs when stocks with low correlations of returns are placed together in a portfolio. Identify at least one type of firm that might exhibit low correlations of returns with the overall stock market? Explain why the correlations of t..
Which of the following examples is an illustration of interest rate risk?
If firm A has a higher debt-to-equity ratio than firm B, then
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