Determine the annualized rate of return

Assignment Help Finance Basics
Reference no: EM131572492

A corporate cash manager who often invests her firm's excess cash in the Eurodollar market is considering the possibility of investing $20 mil- lion for 180 days directly in a Eurodollar CD at 6.15 percent. As an alternative, she considers the fact that the 90-day rate is 6 percent and the price of a Eurodollar futures expiring in 90 days is 93.75 (the IMM index). She believes that the combination of the 90-day CD plus the futures contract would be a better way of lending $20 million for 180 days. Suppose she executes this strategy and the rate on 90-day Eurodollar CDs 90 days later is 5.9 percent. Determine the annualized rate of return she earns over 180 days and compare it to the annualized rate of return on the 180-day CD.

Reference no: EM131572492

Questions Cloud

Weighted average cost of capital : Using a numerical example, explain how the weighted average cost of capital (WACC) is computed. Why is an accurate WACC important to a firm's success?
How is the corporation structured at present : How is the corporation structured at present? Is the decision-making authority centralized around one group or decentralized to many units?
Calculate the overhead applied to production in march : Question - Calculating the Predetermined Overhead Rate, Applying Overhead to Production. Calculate the overhead applied to production in March
Determine whether an arbitrage opportunity : Determine whether an arbitrage opportunity was available and explain what transactions were executed.
Determine the annualized rate of return : Determine the annualized rate of return she earns over 180 days and compare it to the annualized rate of return on the 180-day CD.
Find an explicit formula using iteration : A person saving for retirement makes an initial deposit of $1,000 to a bank account earning interest at a rate of 3% per year compounded monthly.
Explain appropriate forecasting approach for your company : Criticize VectorCal's forecasting method. Explain the appropriate forecasting approach for your company. Provide a rationale to support your determination.
Discuss a change in supply causes a the supply curve : A change in supply causes a the supply curve. A change in quantity supplied causes the supply curve
Forward rate of a contract that expires september : From a European perspective, what should be the forward rate of a contract that expires September 4? (Assume that each month is one-twelfth of a year.)

Reviews

Write a Review

Finance Basics Questions & Answers

  A stock is currently selling for 54 per share a call option

a stock is currently selling for 54 per share. a call option with an exercise price of 55 sells for 3.10 and expires in

  Discuss the tax-transfer system

It has been argued that the scheme for financing Social Security is unfair because people with low earnings are taxed at a higher rate than individuals.

  Determine the number of years required for an investment

An investment of $1 will double in 20 years at a force of interest d (delta). Determine the number of years required for an investment of $1 to triple at a nominal rate of interest, convertible 3 times per year, and which is numerically equivalent..

  Compute the cost of debt before taxes and after taxes

A company issues 15-year, $1,000 par-value bonds,with a coupon rate of 5%. The bonds are sold for $619.70. The tax rate is 30%. Compute the cost of debt before taxes and after taxes.

  Security-confidentiality and international issues

Explain how BANK OF AMERICA site handles security, confidentiality and international issues. Please give specific responses For each part.

  What is the npv of expansion

A company is planning to open 100 new outlets that are expected to generate, in total, $15 million in free cash flows per year, with a growth rate of 3% in perpetuity. If the company's WACC is 10%, what is the NPV of this expansion?

  The last dividend paid by marquette inc was 125 the

the last dividend paid by marquette inc. was 1.25. the dividend growth rate is expected to be constant at 15 for 3

  Preliminary discussions with investment bankers

Mary Francis has just returned to her office after attending preliminary discussions with investment bankers. Her last meeting regarding the intended capital structure of Apix went well, and she calls you into her office to discuss the next steps.

  Calculate the option premium for each contract

Write down the meaning behind each symbol you put to the list - calculate the option premium for each contract and calcuate the instrinsic value, time value for each contract

  Provide the journal entry to record the write-down

Applying the lower-of-cost-or-market rule in this case would cause TII to recognize a loss in the period of the write-down and income in the subsequent period. Does such recognition seem appropriate? Why or why not?

  Use these random numbers to simulate the stock price

Stock price simulation: A stock ' s price is lognormally distributed with mean µ = 15% and s = 50%. The current stock price is S0 = 35.

  The stock market is weak form efficient

Market Efficiency: - Consequently, the consulting firm concluded that the stock market is weak-form efficient. Do you agree? Explain.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd