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Problem One - Assume a company was able to issue a 5-year floating rate note at 12-month LIBOR. Neglect day count conventions.
(i) Prove by replication and no arbitrage that at every reset date this floating rate note trades at a clean price of 100 if the "market" has no information that the default risk of the company has changed since the issue date.
(ii) Assume an increase of interest rates caused a drop of the floating rate note's price in the middle of a coupon period to 99.0. In the bond market a concept called "return to rollover" is used. What do you think how this "return to rollover" is defined.
(iii) Assume that the credit risk of the issuer increased and at the first reset date the clean price of the floating rate note is 90.0. Determine approximately which spread the company would have to accept if it wants to issue a new floating rate note with a maturity of four years at par?
Problem Two - Assume you hold a 2-year coupon bond. You want to replace this bond by a portfolio of bonds with the same market value and $-Duration. How can you achieve this?
How would you classify property, plant, and equipment on the statement of cash flows?
Calculate the amount of output the firm should expect if it uses 25 units of capital and 50 units of labor. Suppose the firm wants to produce the same amount.
Compute of cost of capital and Calculate the cost of capital for the funds needed to meet the expansion goal and The firm expects to generate enough internal equity to meet the equity portion of its expansion needs.
If the standard deviation (sigma) is the deviation of a population, what would be the standard deviation of the sampling distribution of sample means for sample
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There is an economy with three dates {t=0, 1, 2}. Consider the following relationship between a private equity firm and the portfolio company CFA.
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Brighton depreciates oil rigs straight line over 10 years assuming no salvage value. The rig was just sold to British Petroleum for $25,000,000. What Capital Gain/Loss will Brighton report on this transaction?
What is the value on March 1, 2017 of a 6% note maturing September 30, 2023 that pays semi-annually with: A yield to maturity of 5%, A yield to maturity of 7% and What is the duration of the bond above
A firm can be worth $100 million (with 20% probability), $200 million (with 60% probability), or $300 million (with 20% probability).
Two profitable companies in the same industry have similar total stockholders' equity. However, one company has most of its equity balance in common stock.
Determine the Reynolds, Schmidt, and Sherwood numbers associated with this process.- What is the film mass-transfer coefficient, ky, associated with this process?
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