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Your financial firm needs to borrow $200 million by selling time deposits with 270 day maturities. If interest rates on comparable deposits are currently at 2.5%, what is the cost of issuing these deposits? Suppose interest rates decline to 2%. What then will be the cost of these deposits? What position and type of hedge could be used to deal with this cost change?
A. 5m,4m, long hedge
B. 3.75m, 3m, Short hedge
C. 3.75m, 3m, long hedge
D. 4m, 5m, cds swap
Smith’s company is selling a bond with the following features: 5 years to maturity, face value of $1000, coupon rate of 2% (semiannual coupons) and yield to maturity of 4% APR. What is the price of Smith’s company bond?
A currency is currently worth $1.80 and has a volatility of 15%. The domestic and foreign risk-free interest rates are 5% and 2%, respectively. Use a two-step binomial tree to value a) a European four-month put option with a strike price of $1.79, an..
The treasurer for Pittsburgh Iron Works wishes to use financial futures to hedge her interest rate exposure. She will sell five Treasury futures contracts at $143,000 per contract. It is July and the contracts must be closed out in December of this y..
Your stock portfolio consists of only two stocks. You have $15,000 in Company A and $25,000 in Company B. Company A has an actual return of -8% and Company B has a return of 12%. What is the return on your portfolio?
The Houston Corp. needs to raise money for an addition to its plant. It will issue 300,000 shares of new common stock. The new shares will be priced at $60 per share with an 8.5% spread on the offer price. Registration costs will be $150,000. Present..
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $52,000 2 30,000 3 20,000 4 10,000 Thereafter 0 Expenses are expected to be 50% of revenues, and working capital required in each year is expected to be 30% of revenues ..
Assume that interest rate parity holds. In both the spot market and the 90-day forward market 1 Japanese yen equals 0.0086 dollar. In Japan, 90-day risk-free securities yield 4.9%. What is the yield on 90-day risk-free securities in the United States..
The Walgreen Corporation is contemplating a new investment that it plans to finance using one-third debt. The firm can sell new $1000 par value bonds with a 15-year maturity at a price of $947 that carry a coupon interest rate of 12.7 percent that is..
Consider a firm with the following cash flows as of year 0: The firm’s total year 2 interest expense will be $55 million, while it will be $50 million in all other years. What are the Free Cash Flows to Equity (FCFE) to the firm in years 1, 2, and 3?
Assume the current U.S. dollar-British spot rate is 0.6134£/$. If the current nominal one-year interest rate in the U.S. is 2.5% and the comparable rate in Britain is 3.5%, what is the approximate forward exchange rate for 360 days?
Which of the following is not considered a difficulty with regards to the CAPM?
Assume that the average firm in your company's industry is expected to grow at a constant rate of 4% and that its dividend yield is 6%. Your company is about as risky as the average firm in the industry. what is the value per share of your firm's sto..
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