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1. Assume that the default probability for a company in a year, conditional on no earlier defaults is λ and the recovery rate is R. The risk-free interest rate is 5% per annum. Default always occurs halfway through a year. The spread for a 5-year plain vanilla CDS where payments are made annually is 120 basis points and the spread for a 5-year binary CDS where payments are made annually is 160 basis points. Estimate R and λ.
2. Explain how you would expect the returns offered on the various tranches in a synthetic CDO to change when the correlation between the bonds in the portfolio increases.
The McGregor Whisky Company is proposing to market diet scotch. The product will first be test-marketed for two years in southern California at an initial cost of $610,000.
The current level of the index is 400, the risk-free rate is 6% per annum, the dividend yield on the index is 4% per annum, and the volatility of the index is 20%. Use DerivaGem to value the option.
Which is the value of Overland common stock. Overland has just paid a dividend of $2.39. These dividends are expected to grow at a rate of 3.8% in the foreseeable future.
Sadly, one week after your friend makes the first payment, Xander Ltd is sued. The case goes to trial immediately due to the serious nature of the circumstances. The legal matter is clear, and within a week the case is finished.
allen lumber company had earnings after taxes of $547,000 in the year 2009 with 400,000 shares outstanding. on january 1, 2010, the firm issued 26,000 new shares.
Assume that Centerpoint's fair value of $378 million approximates fair value less costs to sell and that the present value of Centerpoint's estimated future cash flows is $383 million.
The first debt is $570 due in 8 months, and the second is $1380 due in 18 months. What will that single payment be if she wants to make it at the end of 1 year given a compound interest rate of 4.9%?
sidney took a 775 cash advance by using checks linked to her credit card account. The bank charges a 3 percent cash advance fee on the amount borrowed and offers no grace period on cash advances.
It takes Cookie Cutter Modular Homes, Inc., about six days to receive and deposit checks from customers. Cookie Cutter's management is considering a lockbox system to reduce the firm's collection times.
A stock has an expected return of 13 percent, its beta is 1.40, and the risk-free rate is 6 percent. What must the expected return on the market be
Generate part of a local-search-and-relax-tree similar to that of Figure 2.20. - After evaluating a leaf node, backtrack to a random node in the current tree.
You own 300 shares of stock which dropped drastically in value today down to $13.50 a share. You have a margin loan of $2,880. What is the amount of your margin call if the maintenance margin is 40 percent
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