How you would value a derivative that pays off 100r

Assignment Help Financial Management
Reference no: EM131241080

Explain how you would value a derivative that pays off 100R in 5 years, where R is the 1-year interest rate (annually compounded) observed in 4 years.

What difference would it make if the payoff were in (a) 4 years and (b) 6 years?

Reference no: EM131241080

Questions Cloud

How the swaption might be used by a corporation : 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?
Blackbody emission spectrum of object : The blackbody emission spectrum of object A peaks in the ultraviolet region of the electromagnetic spectrum at a wavelength of 140 nm . That of object B peaks in the red region, at 660 nm.
Is the flow in the tube laminar or turbulent : It takes 20 seconds for 0.5 cubic inches of water to flow through the 0.046-in.-diameter tube of the capillary tube viscometer shown in Fig. P14.3. Is the flow in the tube laminar or turbulent? Explain.
Calculate the lenght of the arm segment : a. Draw the x-y axis system, and label the coordinates and joint names. b. Calculate the lenght of the arm segment. c. Calculate the angle of the arm from the right horizontal (and draw it).
How you would value a derivative that pays off 100r : Explain how you would value a derivative that pays off 100R in 5 years, where R is the 1-year interest rate observed in 4 years.
About the linear downward-sloping demand curve : Suppose there is a linear downward-sloping demand curve and a linear upward-sloping supply curve for a good. The price of a substitute good increases and the price of an input to production also increases. Graph the original demand and supply curves,..
Identify decision to be made using decision tree approach : Identify the decision to be made using the decision tree approach. Show the decision tree and compute the expected values for each node. Advise the management on the findings.
What is the magnitude of f2 : a.) What is the magnitude of F2, the force exerted by the second snowcat on the housing unit? b.) What is the acceleration of the unit in the y-direction? Hint: Since you are given that the unit is moving purely in the y-direction, what is the acc..
Whether any convexity or timing adjustments are necessary : Explain whether any convexity or timing adjustments are necessary when:- We wish to value a spread option that pays off every quarter the excess of the 5-year swap rate over the 3-month LIBOR rate applied to a principal of $100.

Reviews

Write a Review

Financial Management Questions & Answers

  Considering a contract to set up a manufacturing plant

XYZ Corp. is considering a contract to set up a manufacturing plant in Germany. What are some of the clauses they should consider including in such a contract?

  Depreciate against the dollar from its spot rate

You expect that the INR will depreciate against the dollar from its spot rate of $.0.15 to $.0.125 in 60 days. The following interbank lending and borrowing rates exist: How can you profit from the above given information. Estimate the profits that c..

  Current liabilites-what is the value of recievables

Appex Corporation has current liabilites of 2million, a current ratio of 3.0, a quick ratio of 2.0, and cash ratio of .75. Given the informaion, answer the following about the firms liquidity: What is the value of inventory? What is the value of reci..

  Break-even analysis

The Hartnett Corporation manufactures baseball bats with Pudge Rodriguez’s autograph stamped on them. Each bat sells for $35 and has a variable cost of $22. There are $97,500 in fixed costs involved in the production process. Compute the break-even p..

  Assume that a medical device has a useful life

Assume that a medical device has a useful life of 7 years, and it loses its real value at a constant rate (i.e. 1/7 of the original value per year). At a 6% interest rate, and including depreciation in the calculation, over a 4 year period a $80,000 ..

  What is the firms net profit margin

A firm had net income of $100,000, taxes of $25,000 interest expenses of $10,000, cash of $15,000, depreciation of $12,000, and selling and administrative expenses of $120,000. What was the firm’s revenue? What is the firm’s net profit margin?

  What number of scans are the scanners equally profitable

Seattle Grace Hospital plans to invest in a new piece of CT imaging equipment. The hospital estimates that it can bill $1,500 per scan. Preliminary market assessments indicate that demand will be fewer than 5,000 scans per year. At what number of sca..

  Avout the shorting and margin

Suppose that to short a stock you are required to deposit an amount equal to initial price of the stock. At the end of year 1, the stock price is X_1 and you liquidate your position. You receive your profit from shorting equal to X_0 - X_1 and you re..

  Financial analysis on sherwin williams company

Do a financial analysis on Sherwin Williams Company

  Marginal tax bracket

Builtrite Auto has preferred stock shares outstanding that pay an annual dividend of $8 and are currently selling for $86 a share. What is the after-tax cost of preferred stock if the flotation cost for new shares is 5% and Builtrite is in the 34% ma..

  Expanding rapidly-currently needs to retain all of earnings

Microtech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect Microtech to begin paying dividends, beginning with a dividend of $0.50 coming 3 years from toda..

  Deposit period of the interest is compounded annually

For the case showing in the following table calculate the future value of the single cash flow deposited today at the end of the deposit period of the interest is compounded annually at the rate specified. Single cash flow= 25000 Interest rate 15% De..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd