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On January 1, a firm takes out a loan of $100 million, with interest payments to be made on April 1, July 1, October 1, and the following January 1, when the principal will be repaid. Interest will be paid at LIBOR. The firm wants to buy a cap with an exercise rate of 4% and a premium of $50,000 but is concerned about the cost. Its bank suggests that the firm sell a floor with an exercise rate of 3% for the same premium. The current LIBOR is 4%. Determine the firm’s cash flows on the loan if LIBOR turns out to be 4.5% on April 1, 5% on July 1, 3.5% percent on October 1, and 4.2% the following January 1. Assume 90 days between interest payments, and use a 360-day year convention. Show work.
A loan of $45,999.55 is to be repaid by payments at the end of each quarter for eight years. Each payment is 4% higher than its predecessor. The loan is made at a nominal rate of discount of 4% payable quarterly. Find the balance just after the 20th ..
Calculate the expected return and the volatility of (net) return on the portfolio. Calculate the expected value and volatility of the value of the portfolio.
Austen Enterprises has the following capital structure based on market values which is considered to be optimal: For the coming year, management expects to realize $1,000,000 in net income that can either be paid out as dividends or retained. The mar..
A firm is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. The CEO wants to use the IRR criterion, while the CFO favors the NPV method. You were hired to advise ..
New York Tours (NYT) provides daily sightseeing tours that include transportation, admission to selected attractions, and lunch. Ticket prices are $85 each. During June 2013, NYT provided 3,000 tours. Prepare a contribution income statement for June...
Maintenance on a test track simulator is expected to require $14,000 the first year increasing by 10% each year thereafter during its 5-year life. Interest is expected to be 15% per year. Determine the present worth of this expenditures.
Shelly’s assets include money in the checking and savings accounts, investments in stocks and mutual funds, personal property, such as furniture, appliances, an automobile, coin collection and jewellery. Shelly calculates that her total assets are $1..
Describe the rights and advantages belonging to shareholders. Describe the differences between common stock and preferred stock.
What would be Oberon’s before-tax component cost of debt?
KM Enterprises stock is currently valued at $39 a share. A 4-month call on KM stock with a strike price of $43 is priced at $2.05. Risk-free assets are earning returning 0.375% per month. What is the value of a 4-month put on KM stock with a strike p..
What is the combined value of equity in the two existing companies? What is the value of the new firm’s equity?
You buy a share of stock, write a one-year call option with X = $18, and buy a one-year put option with X = $18. Your net outlay to establish the entire portfolio is $17.50. What must be the risk-free interest rate? The stock pays no dividends.
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