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Sumitomo Bank sells a “three against nine” USD15,000,000 Forward Rate Agreement (FRA) for a 6-month period beginning 3 months from today and ending 9 months from today. The purpose of the FRA is to cover the interest rate risk caused by the maturity mismatch from having made a 3-month Eurodollar loan and having accepted a 9-month Eurodollar deposit. The settlement rate with the buyer is 5 percent. There are actually 180 days in the 6-month FRA period. Assume that 3 months from today the actual rate is 4.35 percent. Determine how much the FRA is worth and discuss who will pays who--the buyer pays the seller or the seller pays the buyer. Show all calculations.
Ms. Manners Catering (MMC) has paid a constant rate of $3.14 per share dividend to its common stockholders for the past 9 years. MMC expects to continue this policy for the next two years, and then begin to increase the dividend at a constant rate eq..
Identify a real-life outsourcing decision that has been made. Identify the specific reasons for the outsourcing. If information is available, discuss the results of the outsourcing decision (jobs lost, cost savings, etc.).
Suppose you know that a company’s stock currently sells for $65.60 per share and the required return on the stock is 10 percent. You also know that the total return on the stock is evenly divided between capital gains yield and dividend yield.
Yield to maturity and yield to call Kaufman Enterprises has bonds outstanding with a $1,000 face value and 10 years left until maturity. They have an 10% annual coupon payment, and their current price is $1,185. The bonds may be called in 5 years at ..
Just as the interest rate sensitivity of a single cash flow increases with its maturity, the interest rate sensitivity of a stream of cash flows increases with its duration. A firm's market capitalization is determined by the difference in the market..
A Treasury bond that settles on October 18, 2013, matures on March 30, 2032. The coupon rate is 5.30 percent and the bond has a 4.45 yield to maturity. What are the Macaulay duration and modi?ed duration?
The initial cost of the fixed assets is $61,000. These assets will be worthless at the end of the project. An additional $4,500 of net working capital will be required throughout the life of the project.
Brushy Mountain Mining Company's coal reserves are being depleted, so its sales are falling. Also, environmental costs increase each year, so its costs are rising. As a result, the company's earnings and dividends are declining at the constant rate o..
Fred, age 36, files single. He earned $46,875 in wages and had no other income in 2014. On April 14 of 2015, he filed for an automatic six-month extension to file his tax return. On May 20, he timely filed his 2014 tax return. Which statement best de..
Messman Manufacturing will issue common stock to the public for $25. The expected dividend and growth in dividends are $3.25 per share and 3%, respectively. If the flotation cost is 16% of the issue's gross proceeds, what is the cost of external equi..
You are given an investment to analyze. The cash flows from this investment are End of year. What is the present value of this investment if 15 percent per year is the appropriate discount rate?
When analyzing investment options, how might the amount and type of risk interact with our expected returns? Is there a formula that can help us quantify this? What is it and does it seem reasonable?
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