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The "standard bond" in the Treasury bond futures contract has a coupon of 6%. If, instead, delivery is made of a 5% bond of maturity 18years, what is the conversion factor for settlement of the contract? Assume the last coupon was just paid.
Taft Manufacturing is currently a levered firm with 15M shares outstanding priced at $30.00 per share and 350K bonds outstanding priced at $1,000 per bond. What is the new price per share immediately following this announcement, but before the shares..
If a firm has a beta of 90% and a market risk premium of 7% and T-bills yield 3.5%. The most recent dividend was $1.80 per share and dividends are expected to grow at a 5% annual rate indefinitely. If the stock sells for 47% per share, what is your b..
You are evaluating a project that costs $840,000, has seven-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 90,000 units per year. Price per unit is $40, vari..
Your stock portfolio is worth $10M with a beta of 1.1. The spot price of S&P 500 is 950. Each S&P 500 contract is for $250 per index points. To protect against the market decline. How many futures contract should you need? Would you go short or long ..
Provide three examples of financial futures and describe how investors would use these contracts. Discuss how bond options can be used for hedging strategies.
Islamic banking institutions commonly enter into the following types of agreements with Muslim home purchasers. An Islamic bank cannot charge interest under Islamic law, but they can pay interest to depositors who are Muslim. Obtaining local currency..
Payday loans are very short-term loans that charge very high interest rates. You can borrow $500 today and repay $580 in two weeks. What is the compounded annual rate implied by this 16 percent rate charged for only two weeks?
Assume that a firm buys a depreciable asset for $6 million and its salvage value is $0 after a depreciable life of 12 years. Using the SLN and DDB functions, determine the depreciation expense for each of the 12 years under the straight-line (SLN) an..
how many shares of stock will be outstanding once the debt is issued if the break-even level of EBIT between these two capital structure options is $48,000?
Suppose you buy a TIPS bond with a 5% coupon rate, 18 months to maturity, pays semiannually, and a YTM of 3.3%. The CPI is currently 275.2. It will increase to 288 in 6 months, to 291 in 12 months, and to 294 in 18 months. Calculate the price of this..
You have just bought a 5 year 10% annual coupon bond with a par value of $1000 at a price of $963.04. Immediately after you bought the bond, the market interest rate changed to 8% per year. If the interest rate does not change from this level for the..
Many firms have devised defenses that make it much more costly or difficult for other firms to take them over. How might such takeover defenses affect the firm's agency problems? Are managers of firms with formidable takeover defenses more or less li..
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