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1. How can a bank hedge when it makes 1-year fixed-rate loans and finances them with 3-month floating-rate deposits?
Buy Eurodollar futures contracts
Sell put options on Eurodollar futures contracts
Sell Eurodollar future contracts
Buy call options on Eurodollar future contracts
2. A&M Hardware assumes new customers will default 8 percent of the time but if they don’t default, they will become repeat customers who always pay their bills. Assume the average sale is $383 with a variable cost of $260, and a monthly required return of 1.65 percent. What is the NPV of extending credit for one month to a new customer?
$6,103.47
$6,858.18
$6,598.18
$5,748.09
$5,589.09
Nelson Tree Disposal receives an average of 400 checks a day. The average amount per check is $525. The firm is considering a lockbox system which it anticipates will reduce its average collection time by 2.5 days. The daily interest rate on Treasury..
You have a construction project to evaluate costing 10,000,000 for construction on a 1,000,000 piece of land.
The angell company has earned $150,000 before taxes during each of the last 15 years, and it expects to earn $150,000 per year before taxes in the future. This year, however, the firm incurred a loss of $650,000. Show how Angell calculates this credi..
You are trying to find out the equity beta (=levered beta) for an unlisted firm. There are two listed firms with debt to equity ratio [D/E) of 0.8 and 1.2, respectively. The levered betas of the two firms are 1.3 and 1.7, respectively. The corporate ..
Calculate cost of common equity for Qualcomm using all possible methods.
Assume the company is a subject to a 30% tax rate. What is the cost of debt of this company?
You are given the following information for Watson Power Co. Assume the company’s tax rate is 30 percent. Debt: 9,000 6.4 percent coupon bonds outstanding, $1,000 par value, 20 years to maturity, selling for 107 percent of par; the bonds make semiann..
Ellen, a citizen of California, was seriously injured in an automobile accident while driving in California.
While examining the current economic outlook, we observe that the risk-free rate is 2% and the market risk premium is 4%. Given this information, which of the following statements is CORRECT?
Grace turned 25 years old today and would like to retire by the time of her 60th birthday. what will be the value of this investment on her 60th birthday?
Lone Star Industries just issued $310,000 of perpetual 10 percent debt and used the proceeds to repurchase stock. The company expects to generate $133,000 of earnings before interest and taxes in perpetuity. What is the value of the company as an unl..
An investment has an installed cost of $579,382. If the discount rate is zero, what is the NPV? At what discount rate is the NPV just equal to zero?
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