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Use the DerivaGem software to value a European swaption that gives you the right in 2 years to enter into a 5-year swap in which you pay a fixed rate of 6% and receive floating. Cash flows are exchanged semiannually on the swap. The 1-year, 2-year, 5-year, and 10-year zero-coupon interest rates (continuously compounded) are 5%, 6%, 6.5%, and 7%, respectively.
Assume a principal of $100 and a volatility of 15% per annum. Give an example of how the swaption might be used by a corporation. What bond option is equivalent to the swaption?
Rramsey tires sells on credit terms of net 45 days, whereas the rest of the industry sells on terms of net 30 days. On annual credit sales of $6 million, Ramsey currently averages 52 days sales in accounts receivable.
The total book value of WTC's equity is $20 million and book value per share outstanding is $10. The stock of WTC is currently selling for a price of $25 per share and the beta of WTC is .85.
Dividends are expected to grow at a rate of 20 percent for the next three years, with the growth rate falling off to a constant 8 percent thereafter. If the required return is 11 percent and the company just paid a dividend of $1.45
Briarcrest Condiments is a spice-making firm. Recently, it developed a new process for producing spices. The process requires new machinery that would cost $2,224,349.
Your analysis tells you that the appropriate discount rates are 10 percent for the cash flows, and 7 percent for the debt. You currently own 10 percent of the stock. How much are your cash flows today
Rewrite the model using the backward shift operator B. - Is the model invertible? Say why. - Does an auto-regressive representation exist? If yes, give it.
Merton Enterprises has bonds on the market making annual payments, with 14 years to maturity, and selling for $972. At this price, the bonds yield 8.4 percent.
Consider three zero-coupon bonds with 2, 10, and 30 years to maturity and with required yields 4%, 7%, and 9%, respectively. Calculate the price and modified duration of the three bonds using annual compounding.
a stock's expected dividend payment at the end of the year (d1) is $1. the required rate of return is r(s)= 11%, and the growth rate of the dividend is constant at 5%. what is the current stock price
Fit a least squares linear regression model for FPower against GasSpot and SDTemp using data in TRG. - Compare the numerical results obtained with the various methods, and explain why they could have been expected.
Determine the annual payment on a $500,000, 12 percent business loan from a commercial bank that is to be amortized over a five-year period.
Your firm is contemplating the purchase of a new $674,000 computer-based order entry system. The system will be depreciated straight-line to zero over its six-year life. It will be worth $58,000 at that time.
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