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Consider a [30%, 100%] super senior tranche , and a index CDS spread of 200 bps for 5 years maturity assuming 0% recovery and 0% interest rates. We’ll be pricing this tranche using one factor gaussian copula.
a) What is the tranche expected loss ?
b) What is the effect of correlation for equity tranche expected loss and par CDS spread? use 1%, 10%, 20%, 30% gaussian copula correlation and compute the par spread and expected loss. c) How do you hedge the super senior tranche with the index?
A manager of an inventory system believes that inventory models are important decisionmaking aids. Even though often using an EOQ policy, the manager never considered a backorder model because of the assumption that backorders were bad and should be ..
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Assume that Jose is indifferent between investing in a corporate bond that pays 10% interest and a stock with no growth potential that pays an 8% dividend yield. Assume that the tax rate on dividends is 15%. What is Jose's marginal tax rate?
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Jiminy's Cricket Farm issued a 30-year, 7.4 percent semiannual bond 8 years ago. The bond currently sells for 91 percent of its face value. The book value of this debt issue is $96 million. What is the aftertax cost of debt? What is the aftertax cos..
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Walmart is considering opening a small experimental store in New York City. A store is expected to have a long economic life, but the valuation horizon is 15 years. The store in New York is likely to generate revenues of $34M in the first year and th..
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