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You recently approached your bank about establishing a credit line facility. The terms offered by your bank include a nominal rate of prime + 1.5% (prime is currently 5%) on the amount borrowed, a commitment fee of 25 basis points on the unused portion of the credit line, and a compensating balance of 10% on the amount borrowed. You decide to establish the line for $75 million. Over the course of a year, you anticipate the average amount borrowed to be $55 million. Your firm keeps no balances at the bank paying fees for all cash management services.
1) Estimate the cost of credit line.
2) Assume that the firm did have cash balances to cover the required compensating balances resulting from the credit line borrowings. Estimate the effective cost of the credit line.
Jason Greg is a recen retiree who is interested in investing some of his savings in coporate bonds. Listed below are the bonds he considering adding to his portfolio. Before calculating the price of the bonds, indicate whether each bond is trading at..
Diane is interested in buying a five-year zero coupon bond with a face value is $1,000. She understands that the market interest rate for similar investments is 9 percent. Assume annual coupon payments. What is the current value of this bond?
We've just spent time talking in the course about both technical and fundamental investing. Which makes more sense to you and why? There is no correct answer ... plenty of very smart and successful people are on both sides of the argument.
The book-to-market is the observation that firms with high book-to-market ratios have positive alphas. If the market portfolio is not efficient, then a portfolio of high book-to-market stocks will likely have positive alphas. Portfolios with high mar..
Bruno's is an all-equity firm with 20,000 shares of stock outstanding. The stock has a beta of 1.3 and a standard deviation of 8 percent. The market risk premium is 6.5 percent and the risk-free rate of return is 2 percent. The company is considering..
If Mike purchase the interest in a partnership from Carl for $11,000, and Carl contributed the land for $6000 and the next year the parntership sells the land for only $5,400 what is the tax consequence to Mike the new partner?
in 1895 the first u.s. open golf championship was held. the winners prize money was 150. in 2006 the winners check was
A loan has monthly payments. The APR is 19%, and interest is compounded 2 times per year. Calculate the effective interest rate that would be needed to find the payment amount for the loan.
What is the significance of each of the different types of value in the valuation process? Use examples to support your response?
Elaine Tolbert is a 28-year-old management trainee at a large chemical company. She is single and has no plans for marriage. Her annual salary is $34,000 (placing her in the 15 percent tax bracket), and her monthly expenditures come to approximately ..
Suppose the company you work for purchased a textile mill for $25million 4 years ago. It’s current market value is $20 million, and is estimated to decline exponentially for the foreseeable future following this exponential function: The mill’s estim..
You buy a straddle, which means you purchase a put and a call with the same strike price. The put price is $1.20 and the call price is $3.50. Assume the strike price is $30. a. What are the expiration date profits to this position for stock prices of..
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