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On January 15, a firm takes out a loan of $30 million, with interest payments to be made on April 16, July 15, October 14, and the following January 15, when the principal will be repaid. Interest will be paid at LIBOR based on the rate at the beginning of the interest payment period, using the exact number of days and a 360-day year.
The firm wants to buy a cap with an exercise rate of 10 percent and a premium of $125,000 but is concerned about the cost. Its bank suggests that the firm sell a floor with an exercise rate of 9 percent for the same premium. The current LIBOR is 10 percent.
Determine the firm's cash flows on the loan if LIBOR turns out to be 11.35 percent on April 16, 10.2 percent on July 15, and 8.86 percent on October 14.
If you have a financial calculator or spreadsheet, determine the internal rate of return and annualize it to determine the cost of borrowing.
From the table below, the yields on the 3-year, 1-year, and 2-year Treasury Bonds are 3.47%, 3.33%, and 2.69%, respectively. (10 pts) Use the model of rational expectations theory to determine the market’s expectation of the 1- year interest rate 2-y..
A company expects the following net cash flows in the future: net cash flow (ncf) yr 1 = 100,000, ncf yr 2 = 125,000, ncf yr 3 = 150,000, ncf yr 4 = 100,000, ncf yr 5 = -25,000 (negative 25,000). Calculate the total PV of the cash flows from this pro..
Explain what a leveraged buyout (LBO) is. Define the term divestiture and briefly discuss the major types of divestitures. Provide reasons a company might consider a divestiture.
You were given multiple sources in the Module folder to investigate the current yield curve. If you did not, go look at the source of your choice, then answer the following questions by filling in the blanks: What Shape (slope) is the yield curve tod..
Eastern Electric currently pays a dividend of about $1.64 per share and sells for $27 a share. If its dividend growth rate is 4.4 %, and the payout ratio is 0.61, what must be the return on investment of the firm?
Assume there are no taxes or imperfections. Given this assumption, which one of the following statements is correct? A cash dividend has no effect on the market price of the payer's stock. A cash dividend decreases shareholder wealth. Stock repurchas..
You have just received an endowment and placed this money in a savings account at an annual rate of 19.01 percent. You are going to withdraw the following cash flows for the next five years. End of year 1. $1406 2. $9693 3. $2460 4. $2265 5. $846 How..
Bayou Okra Farms just paid a dividend of $3.30 on its stock. The growth rate in dividends is expected to be a constant 6 percent per year indefinitely. Investors require a return of 15 percent for the first three years, a return of 13 percent for the..
A pension plan is obligated to make disbursements of $1.7 million, $2.7 million, and $1.7 million at the end of each of the next three years, respectively. The annual interest rate is 8%. If the plan wants to fully fund and immunize its position, how..
Determining the Ex-Dividend Date. On Tuesday, December 8, Lippincott Power Co.’s board of directors declares a dividend of 75 cents per share payable on Tuesday, January 26, to shareholders of record as of Tuesday, January 12. What is the ex-dividend..
When you do your research on mutual fund performance, you need to consider the fact that only unsuccessful investment strategies are made public. What is the effect of this fact on your research about the mutual fund performance? (I.e., will the perf..
Suppose you know that a company’s stock currently sells for $51 per share and the required return on the stock is 11 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. It's ..
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