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1. What are the payoffs for each tranche?
2. What are the prices for each tranche?
3. What is the yield for each tranche?
4. You are evaluating a mortgage pool and want to understand what the credit spread implied by the underlying loans should be. Annual default frequencies are shown. LGD is 40 percent and the risk-free rate is 2.5 percent. What is the implied credit spread on the pool?
A widget manufacturer currently produces 200,000 units per year. It buys widget lids from an outside supplier at a price of $2 a lid. The plant manager believes that it would be cheaper to make these lids rather than buy them. The plant manager estim..
Darshak won a $1,000,000 lottery which will pay $5,000 at the beginning of each month for the next 30 years. If the payments were made at the beginning of each year for the next 30 years rather than at the beginning of each month, how much would the ..
An interest rate cap of 7% with a notational value of $18.9 million is available for a premium of 0.58%. The same notational value 3% floor is available for a premium of 0.64%. If current interest rates are at 8%, what would be the a financial instit..
Efficient provision of a public good occurs at the level at which each member of society places the same value on the last unit. If a good is non rival and excludable, it will never be produced by the private sector. A road is non rival because one p..
Both a wife and her husband work in the airline industry. They are in their 40s and they have a high tax bracket and are concerned about their after tax rate of return. A meeting with their financial planner reveals they are primarily focused on long..
BMX Company has one employee. FICA social security taxes are 6.2% of the first 117,000 paid to its employee, and FICA Medicare taxes are 1.45% of gross pay. For BMX, its FUTA taxes are 0.6% and four taxes as applied to the employee’s gross earning fo..
Calculate the beta for the following portfolio, What is the portfolio beta for this company?
Calculate the call using the Black-Scholes model. Show all workings and what would be the price of a put with an exercise price of $120 and the same time until expiration? Show all workings.
Calculate the standard deviations of the returns for Goodman, Landry, and the Market Index. (Hint: Use the sample standard deviation formula given in the chapter, which corresponds to the STDEV function in Excel.) Estimate Goodman’s and Landry’s beta..
Newcomer Mills is a relatively new firm which will retain all of its earnings for the next four years. Four years from now, the firm expects to pay its first dividend of $0.25 a share. After that, it intends to increase the dividend by 4 percent annu..
Quirk and Company has been busy analyzing a new product. It has determined that an operating cash flow of $18,500 will result in a zero net present value, which is a company requirement for project acceptance. Should the company develop the new produ..
Compute the cost of capital for the firm for the following: a. A bond that has a $1,000.00 par value (face value) and a contract or coupon interest rate of 11.6 percent. Interest payments are $58.00 and are paid semiannually. The after-tax cost of de..
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