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Rone Company asks Paula Scott, a treasury analyst, to recommend a flexible way to manage the company’s financial risks.
Two years ago, Rone issued a $25 million (U.S.$), five-year floating rate note (FRN). The FRN pays an annual coupon equal to one-year LIBOR plus 75 basis points. The FRN is non-callable and will be repaid at par at maturity.
Scott expects interest rates to increase and she recognizes that Rone could protect itself against the increase by using a pay-fixed swap. However, Rone’s Board of Directors prohibits both short sales of securities and swap transactions. Scott decides to replicate a pay-fixed swap using a combination of capital market instruments.
a. Identify the instruments needed by Scott to replicate a pay-fixed swap and describe the required transactions.
b. Explain how the transactions in Part a are equivalent to using a pay-fixed swap.
Suppose you work for a drug manufacturing corporation that holds a patent on Hair Grow, the world most effective drug for restoring hair.
Describe the effect that each of the policies will have on the economy and demonstrate each on an individual AD-AS graph. Be sure to address the effect on output, employment and price level in your descriptions.
Find the capitalized cost of a present cost of $330,273, annual costs of $41,182, and periodic costs every 5 years of $75,087. Use an interest rate of 10% per year.
The Hair Stylist, limited, has a monopoly in College Park market because of restrictive licensing requirements, and not because of superior operating efficiency.
What fraction of the total variation in the quantity demanded of good Y remains unexplained? What can the student do to increase the explanatory power of his demand equation? What other variables might he add to his demand equation?
How the process of globalization in trade of your good been eroded through regional and multilateral agreements. You should identify the extent to which barriers have been eroded through these agreements as well.
Illustrate what are the roles of central bank independence and financial market development in budget deficits and inflation.
The depreciation schedule for certain equipment has been arrived at by various methods. The estimated salvage value of the equipment at the end of its 6 year useful life is $600. Identify the resulting depreciation schedules. Year A B ..
Assume that a price support system for cotton requires the federal government to pay farmers $3,000 for each acre to not plant cotton. How would you shift either the supply or demand curve for cotton to describe the effect of this action? In your a..
Fleet rental car company purchased 10 new cars for a total cost of $180,000. The cars generated income of $150,000 per year and incurred operating expenses of $60,000 per year. The company ises MACRS depreciation and its marginal tax rate is life ..
A man is fired from his job because he was late for work too many times; While he is searching for another job, he would not be counted in the labor force because his employer had a legitimate reason for firing him.
Economic growth has increased in the past few months in the United States and driven by a surging stock market and increased confidence in the global economy, Canadians have increased optimism about the future of economic growth.
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