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Harrison Co. issued 15-year bonds one year ago at a coupon rate of 6.6 percent. The bonds make semiannual payments. If the YTM on these bonds is 5.5 percent, what is the current dollar price assuming a $1,000 par value?
Construct an interest rate tree according to the method presented in class with step size h = 0.5, volatility ? = 0.2, drift m = 0.1, and initial 0.5-year rate r = 8%. The tree should give short rates out to time 0.5. What is the time 0 price of $1 p..
Some lenders charge an up-front fee on a loan, which is subtracted from what the borrower receives. This is typically described as "points" (where one point equals 1% of the loan amount). The federal government requires that this be accounted for in ..
Och, Inc., is considering a project that will result in initial aftertax cash savings of $1.84 million at the end of the first year, and these savings will grow at a rate of 1 percent per year indefinitely. The firm has a target debt–equity ratio of ..
An embedded option associated with each of the following instruments potentially alters the rate sensitivity of the underlying instrument. Indicate when the option is typically exercised and how it affects rate sensitivity. The current prime rate is ..
Explain the differences between gross and net currency risk exposures for a multinational corporation.
Breakeven cash inflows The One Ring Company, a leading producer of fine cast silver jewelry, is considering the purchase of new casting equipment that will allow it to expand its product line. If One Ring requires a 9% return on its investment, what..
Suppose that the price of a non-dividend-paying stock is $30, its volatility is 25%, and the risk-free rate for all maturities is 4% per annum. Use DerivaGem European binomial with 60 steps to calculate the cost of setting up the following positions...
Rooter's cleaning services provided data concerning the costs incurred to clean hotel rooms for which hotel customers pay $150 per night. Data for the past 7 months are as follows: Jan, Feb, March, April, May, June, July: 250, 160, 200, 150, 285, 170..
James Street's son, Harold, is 10 years old today. Harold is already making plans to go to college on his 18th birthday, and his father wants to start putting money away now for that purpose. Any balance remaining in the account will continue to earn..
Consider a project to supply 100 million postage stamps per year to the U.S. Postal Service for the next five years. You have an idle parcel of land available that cost $1,900,000 five years ago; if the land were sold today, it would net you $2,100,0..
You own a portfolio that has $2,100 invested in Stock A and $3,050 invested in Stock B. If the expected returns on these stocks are 10 percent and 14 percent, respectively, what is the expected return on the portfolio? (Do not round your intermediate..
You need a 30-year, fixed-rate mortgage to buy a new home for $240,000. Your mortgage bank will lend you the money at a 7.5 percent APR for this 360-month loan, with interest compounded monthly. What will be the amount of the balloon payment if you a..
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