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Assume that you bought an interest rate cap on three- month LIBOR with a 2.50 percent strike rate. The current rate for three- month LIBOR is 2.28 percent.
a. What will happen to the premium (value) on this cap if LIBOR rises to 3.16 percent? Explain.
b. What will happen to the premium (value) on this cap if LIBOR falls to 2.10 percent? Explain
You observe the following three exchange rates at which you can buy or sell (borrow or lend). Calculate your total profit from triangular arbitrage, reporting your total profit in $ (by first calculating the profit in British pounds and then converti..
Discuss the approach you would recommend for performing a valuation of common equity using the dividends valuation method, the free-cash-flows method, and market-based methods. Compare and contrast the advantages and disadvantages of each method.
For each of the following pairs of treasury securities (each with $1000 par value), identify which will have the higher price:
Nedo Enterprises originally sold bonds in 2011 with a 10 year maturity, $1000 par, 6% coupon paying annual interest. It is now 2015 and 4 years later. Bonds of similar risk selling at par know have a 5% coupon rate. What price would bond investors be..
Keven Winthrop is saving for an Australian Vacation in three years. He estimates that he will need $5000 to cover his airfare and all the other expenses for a Week-long holiday in Austarilia if he can invest his money in an S&P 500 equity index that ..
Examine strategies for decision-making based on quantitative models and examine the criticality of timely information.
Explain how purchase of the apple press might affect the company's revenue goals. Based on this information, explain whether Anthony's Orchard should invest in the apple press.
General Mills has a $1,000 par value, 12-year bond outstanding with an annual coupon rate of 3.60 percent per year, paid semi-annually. Market interest rates on similar bonds are 12.70 percent. Calculate the bond's price today.
An oil drilling company must choose between two mutually exclusive extraction projects, and each costs $11.8 million. Under Plan A, all the oil would be extracted in 1 year, producing a cash flow at t = 1 of $14.16 million. Does this imply that the W..
If $120,000 is borrowed for a home mortgage, to be repaid at 9% interest over 30 years with monthly payments of $965.55, how much interest paid over the life of the loan?
Explain how the following situations can shed light on the question, What is the character of the borrower and quality of information provided? Significant number of Better Business Bureau complaints. The business is a family business and several mem..
You are considering making a working capital loan to a company that manufactures and distributes fad items for convenience and department stores. The loan will be secured by the firm's inventory and receivables. What risks are associated with this ty..
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