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The financial analysts at Bearings and Nuts Limited a local conglomerate wants hedge the exposure of a variable interest rate loan it negotiated last year. Due to an uncertain economic environment, the fluctuation of local interest rate might affect the total long term obligations on the company’s balance sheet. As a result, the corporate risk manager indicated that the entity could enter into a swap agreement to nullify this potential exposure. Management is also considering mitigating risk by initiating a call option. The stock has a current market value of $60. However, the strike price is $50 and the option is to be exercised in 180 days. The volatility of the stock as measured by standard deviation is 40% and the annualised risk free rate is 4%. Therefore, the following spot curve was obtained with rates up to a maturity date of five years: Maturity (yrs.) Spot Rate (%) 0.5 6.90% 1 6.95% 1.5 7.50% 2 7.75% 2.5 8.17% 3 8.75% 3.5 8.90% 4 9.20% 4.5 9.55% 5 9.85 % Required a. Using the information above, calculate the swap rate that will hedge against the floating rate exposure. [ 10 marks ] b. Calculate the value of the call option [ 10 marks ] c. Use the put-call parity to calculate the value of the put [
Based on the data contained in Table A, what is the break-even point in units produced and sold?
Suppose you deposit $1000 in one year, $2000 in two years, and $4000 in three years. Assume a 4 percent interest throughout. How much will you have in 5 years?
Under the assumptions of Modigliani-Miller, what is the effect on the stock price of an announcement of a $1 special dividend to be paid in 6 months? Find the new stock price after the ex-? dividend date.
The account that reflects the amount the owners have invested in the business is: Arson Incorporated's balance sheet lists assets at historical cost less accumulated depreciation. Which of the following ratios depicts investment efficiency? Projectin..
Assume that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 27%. The T-bill rate is 7%. You estimate that a passive portfolio invested to mimic the S&P 500 stock index yields an expected rate of return ..
You have the following bond: $1000 Par, 22 years to maturity, Mkt rate of 9.75%, coupon of 10.25%, compounded semi-annually. The PV of the bond is $1044.97. What contribution to this $1044.97 does the coupon payment 27 periods from today make to this..
the caraway seed company sells specialty gardening seeds and products primarily to mail-order and internet customers.
Assume that you have been provided with the following data: D1 = $1.30; P0 = $42.50; and g = 5.0% (constant). What is the cost of equity based on the Dividend Growth Model? ________ 8.06% 10.06% 11.41% 12.0%
scenario questions ltbrgt ltbrgt ltbrgt?starting a new product or service line that will require new kinds of employees
Using NPV calculation, show the preset value of the present collection experience and calculate the NPV of the proposed 2/10, net-30 terms.
What is the current common stock value for each of the companies listed walt disney ,oracle corporation ford motor company. what is the current common stock value? how many shares are issued?
Company needs to decide between two machines. Which machine would you recommend?
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