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1. Consider a 3-yr corporate bond paying a coupon of 7% per year payable semi-annually and has a yield of 5% (expressed with semi-annual compounding). Assume the yield for all maturities on risk-free bonds is 4% per annum. Assume that default can take place every 6 months immediately before a coupon payment. Also assume that the recovery rate is 45%. Estimate the default probabilities assuming that the unconditional default probabilities are the same on each possible default date..
2.
The following is the balance sheet of a DI (millions)
ASSETS
Liabilities & Equity
CASH
$2
Demand deposits
$50
LOANS
50
Equity
5
Primeses and Equipment
3
TOTAL
55
Total
The asset-liability management committee has estimated that the loans, whose average interest rate is
6 percent and whose average life is three years, will have to be discounted at 10 percent if they are to
be sold in less than two days. If they can be sold in four days, they will have to be discounted at 8 percent.
If they can be sold later than a week, the DI will receive the full market value. Loans are not amortized; that is,
the principal is paid at maturity.
A) What will be the price received by the DI for the loans if they have to be sold in two days? In four days?
B) In a crisis, if depositors all demand payment on the first day, what amount will they receive? What will
they receive if they demand to be paid within the week? Assume no demand issurance
Computation of optimum cash balance and savings there on using Baumol model and What is the total saving to the firm if it switches from its current practice to the optimum practice
Therefore, a)reject or B) accept project A and a)reject or B) accept project B(Round your answers to 3 decimal places. (e.g., 32.162)) What is the payback period for both projects?
You are analyzing the after-tax cost of debt for a firm. You know that the firm's 12-year maturity, 10.80 percent semi-annual coupon bonds are selling at a price of $1,189.39. These bonds are the only debt outstanding for the firm What is the curr..
You own a portfolio equally invested in a risk-free asset and two stocks. One of the stocks has a beta of 1.25 and the total portfolio is equally as risky as the market.
Describe the use of the term deferred revenues in governmental fund accounting.
Determine how these companies could engage in an interest rate swap to decrease their cost of financing.
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Saunders Corp. has a book net worth of $13,655. Long-term debt is $9,100. Net working capital, other than cash, is $3,720. Fixed assets are $18,280 and current liabilities are $1,990.
Jacob has an opportunity to invest in new retail development in his building. The initial investment is $50,000 & expected cash-flows are as follows: Year 1: $2,500 Year 2:
Describe the theoretical perspectives of PPP and empirical evidence in testing PPP. To what extenet PPP may or may not hold in the real world? To what extent does it hold in the real world? Please give various of factors that contribute to the depar..
Scenario Analysis. The common stock of Leaning Tower of Pita, Corporation, a restaurant chain, will make the following payoffs to investors next year:
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