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The CEO of a large corporation holds a position of 25 million shares in her company's stock, which is currently priced at $20 and pays no dividends. She is concerned that, because of her large shareholdings and the fact that her compensation is tied to the performance of the stock, she is very poorly diversified.
She does not think it is wise to sell a significant amount of stock, because she knows that she needs to be heavily invested in the stock to satisfy the shareholders, and she values the voting rights she has from owning so many shares.
Nonetheless, she would be interested in synthetically selling about five million shares using an equity swap.
Assume the role of a swap dealer and present three possible equity swap proposals, which are based on the three different types of cash flows that could be paid against payment of the return on the stock.
Robert Hitchcock is 39 years old today and he wishes to accumulate $561,500 by his 60th birthday so he can retire to his summer place on Lake Hopatcong. He wishes to accumulate this amount by making equal deposits on his 39th through his 59th birthda..
Mitchell Auto Parts Inc. has estimated the probability distribution of its annual net cash flows as follows: Compute the expected annual cash flow. Compute the standard deviation of annual cash flows. Compute the coefficient of variation of annual ca..
Delta corp. earned 2.50 per share during the fiscal year 2011 and paid cash dividends of $1.00 per share. During the fiscal year that just ended on December 31 2012. Delta earned $ 3.00 per share, and the firm’s manager except to earn this amount per..
A particular type of bacteria grows at a rate of 17% per day. If my hyena got infected with 700 bacterium when his leg was cut by barbed wire, how many bacterium will be present in 3 days when I finally decide I need to take the hyena to the veter..
Alpha Company is paying a $1.50 per share dividend today. There are 200,000 shares outstanding with a par value of $1 per share. As a result of this dividend, the:
You need a 35-year, fixed-rate mortgage to buy a new home for $325,000. Your mortgage bank will lend you the money at an APR of 6.2 percent for this 420-month loan. However, you can afford monthly payments of only $1,650, so you offer to pay off any ..
A bond has the following terms: Annual interest 100 , Term 15 Years, Principal $1000 a. What is the current price of the bond if comparable yields are 7 percent? b. What are the current yield and yield to maturity given the price of the bond in the p..
Define the current ratio and return on assets ratio. State what financial management problem each of these financial ratios could be used to identify. What would be a good benchmark to use for each of these financial ratios?
Explain how macrohedging differs from microhedging.
Identify common financial factors for an MNC to consider when assessing country risk. Briefly elaborate on how each factor can affect the risk to the MNC.
Clay Harden borrowed $25,000 from a bank at an interest rate of 9% compounded monthly. The loan will be repaid in 36 equal monthly installments over three years. Immediately after his 20th payment, Clay desires to pay the remainder of the loan in a s..
5 years ago, Barton Industries issued 25-year noncallable, semiannual bonds with a $1,200 face value and a 8% coupon, semiannual payment ($48 payment every 6 months). The bonds currently sell for $845.87. If the firm's marginal tax rate is 40%, what ..
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