Eurodollar futures to lock in rate of interest

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Reference no: EM131998549

1. Suppose a project has initial outlay of $12,000 and after-tax cash flows of $2,000 each year for first three years and $4,000 each year for the following three years. If the required rate of return is 6.50%, what is the equivalent annual annuity?

2. You can value a stock based just on its expected cash flows to an investor. If a stock is expected to pay dividends of $1.25 per year for the next five years and you believe that you can sell it for $65 at the end of the five year period, what is its value if your required rate of return is 11%?

3. A trader uses 3-month Eurodollar futures to lock in a rate of interest on a $7.5 million investment for 12 months. How many contracts are required? Should the trader buy or sell futures?

Reference no: EM131998549

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