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Suppose that the LIBOR yield curve is flat at 8% (with continuous compounding). The payoff from a derivative occurs in 4 years. It is equal to the 5-year rate minus the 2-year rate at this time, applied to a principal of $100 with both rates being continuously compounded. (The payoff can be positive or negative.)
Calculate the value of the derivative. Assume that the volatility for all rates is 25%.
What difference does it make if the payoff occurs in 5 years instead of 4 years? Assume all rates are perfectly correlated.
Assume the company's tax rate is 35 percent. Debt: 5,000 6% coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 105% of par; the bonds make semiannual payments.
This assignment requires you to explore this concept further by selecting any country (excluding China or India) and analyzing and evaluating the concept of growth and poverty levels as a consequence of trade and international capital flows
The age of a group of 50 women are approximately normally distributed with a mean of 48 years and a standard deviation of 5 years. One woman is randomly selected from the group and her age is observed.
Rank the three for a Rawlsian social welfare function.- How would your answer change if the utility function was instead U(Y) 5 Y1/5?- How would a Rawlsian rank the three tax policies?
Your neighbor goes to the post office once a month and picks up two checks, one for $13,400 and one for $4,400. The larger check takes three days to clear after it is deposited; the smaller one takes two days.
War tends to cause significant reactions in financial markets. - Why would a war in Iraq place upward pressure on U.S. interest rates?
Show that V1 + f = V2, where V1 is the value of a swaption to pay a fixed rate of sK and receive LIBOR between times T1and T2.
Bond X is a premium bond making annual payments. The bond has a coupon rate of 9.2 percent, a YTM of 7.2 percent, and has 17 years to maturity. Bond Y is a discount bond making annual payments.
Highsmith Rental Company purchased an apartment building early in 2013. There are 20 apartments in the building and each is furnished with major kitchen appliances.
Sadly, one week after your friend makes the first payment, Xander Ltd is sued. The case goes to trial immediately due to the serious nature of the circumstances. The legal matter is clear, and within a week the case is finished.
A construction company entered into a fixed-price contract to build an office building for $40 million. Construction costs incurred during the first year were $12 million and estimated costs to complete at the end of the year were $18 million.
Use the explicit finite difference method to value the option. Consider exchange rates at intervals of 0.20 between 0.80 and 2.40 and time intervals of 3 months.
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