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Problem - HEDGING - Assume that interest rate futures maturing in March 2018 are selling for 125-145. It is now early June, and the current cost of debt to the high-risk biotech company is 11%. However, the firm's financial manager is concerned that interest rates will climb even higher in coming months.
a. Create a hedge against rising interest rates.
b. Assume that interest rates generally increase by 200 basis points. How well did your hedge perform?
c. What is a perfect hedge? Are most real-world hedges perfect? Explain.
The purchase price is $8,500. Jim is in a 28% tax bracket and sales taxes are 5%. The cost of capital for Jim to purchase the trailer is 8%.
The Securities and Exchange Commission (SEC) controls margin requirements. A disadvantage of going public is that officers must disclose holdings.
A privately hold corporation wishes to estimate its cost of equity. The firm has a target debt-to-equity ratio of 0.5 and the marginal tax rate is 35%. The yield on 10 year U.S. Treasury securities is 4% and the expected market risk premium is 6%. Wh..
Rawlings needs to raise ?$42,500,000 for its new manufacturing plant in Jamaica. How many bonds will Rawlings need to sell to raise the ?$42,500,000??
You are currently renting an apartment for $725 per month and paying $275 annually for renter’s insurance. You just found a small townhouse you can buy for $185,000. You have enough cash for a $10,000 down payment and $4,000 in closing costs. calcula..
An investment will pay $1,628 two years from now, $3,158 four years from now, and $3,158 five years from now. If the opportunity rate is 9.80 percent per year, what is the present value of this investment?
What is the approximate four-year forecast of the rupee's spot rate if the four-year forward rate is used as a forecast?
Audit standards indicate that there is a presumption that auditors will confirm accounts receivable unless the balance is immaterial, confirmations are deemed ineffective, or the auditors' assessment of risk is low and other procedures will achieve t..
Which of the following items should be included in the calculation of incremental after-tax free cash flows for a project?
The mortgage on your house is 5 years old. It required monthly payments of 1,422, had an original term of 30 years, and had an interest rate of 10% (APR –monthly). What monthly repayments will be required with the new loan? Suppose you are willing to..
When you were born, your parents opened an investment account in your name and deposited $15,000 into the account.
The betas for these four stocks are .75, 1.13, 1.14, and 1.31, respectively. What is the portfolio beta?
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