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Collateralized Debt Obligation (CDO) Problem
An investment bank has created a CDO by pooling 100 bonds which will either pay off $0 (in case of default) or pay off $1. The CDO has three risk classes rated AAA, BBB, and CCC with face values of $70, $20, and $10, respectively. The current prices of the tranches are respectively, $66, $12, and $1. Consider the strategy of buying one unit (out of 100 units) of the BBB class and shorting one unit of the AAA tranche. How many bonds will have to default for this portfolio to make money?
The Caughlin Company has a long-term debt ratio of .30 and a current ratio of 1.60. What is the amount of the firm’s net fixed assets?
a. Explain how the theory of comparative advantage relates to the need for international business. b. Explain how the product cycle theory relates to the growth of an MNC.
Starter Corp. of New Haven, Connecticut, produces sportswear that is licensed by professional sports teams. It recently decided to expand in Europe. What are the potential benefits for this firm from using DFI?
A project will produce an operating cash flow of $7,300 a year for three years. The initial investment for fixed assets will be $11,600, which will be depreciated straight-line to zero over the asset’s 4-year life. The fixed assets can be sold for an..
Given a constant growth rate (g) in dividends, earnings and the share price, what is the stock's total return for the coming year?
What is the before-tax cost of debt for Olympic? What is Olympic's after-tax cost of debt?
Calculate–where possible–the amount of interest that you will pay to DBS. Formulate a strategy using swaps to hedge this risk.
Which of the following will result in the dissolution of a partnership?
Find the net present value (NPV) for the following series of future cash flows, assuming the company’s cost of capital is 5.13 percent.
An investment project provides cash inflows of $1,350 per year for eight years. What is the project payback period if the initial cost is $4,250? What is the project payback period if the initial cost is $5,300? What is the project payback period if ..
Gold mining, inc uses the profitability index when evaluating projects.
Which of the following statements is false with regard to the accounting for derivatives?
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