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Discussion: Contracts
Forward and future currency contracts are similar in the aspect of exchanging currency on a specified date in the future. Explain three similarities of both future and forward currency contracts and three major differences of both future and forward currency contracts. Give examples of how each type of contract is used in an MNC.
Sheaves Corp. has a debt−equity ratio of .85. The company is considering a new plant that will cost $120 million to build. When the company issues new equity, it incurs a flotation cost of 9 percent. The flotation cost on new debt is 4.5 percent. Wha..
Consider the following information: Rate of Return If State Occurs State of Probability of Economy State of Economy. Your portfolio is invested 30 percent each in A and C and 40 percent in B. What is the expected return of the portfolio? What is the ..
Olympic Sports has two issues of debt outstanding. One is a 7% coupon bond with a face value of $26 million, a maturity of 15 years, and a yield to maturity of 8%. The coupons are paid annually. What is the before-tax cost of debt for Olympic? What i..
Now I am considering purchasing a whole fleet of new golf carts. The total cost of the new fleet is $2.2 million (yes million!). I can sell my old 10 year old fleet (which I dished out 1 million for) even though it is fully depreciated (has zero book..
Compute the market value of the bonds. What is the? firm's after-tax cost of debt if the? firm's tax rate is 34 ?percent?
carefully compare and contrast the dividend discount model to the capital asset pricing model. discuss the strengths and weaknesses of each. Explain the roles of risk and diversification and how they can complement each other. What is the business re..
You manage an equity fund with an expected risk premium of 11.8% and a standard deviation of 32%. The rate on Treasury bills is 3.2%. Your client chooses to invest $70,000 of her portfolio in your equity fund and $130,000 in a T-bill money market fun..
Gay Manufacturing is expected to pay a dividend of $1.25 per share at the end of the year (D1 = $1.25). The stock sells for $32.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever..
Assume a two-year Euro-note (pays coupon annually), $100,000 par value, an annual coupon rate of 10 percent and convexity of 2.7. If today’s YTM is 11.6 percent and term structure is flat, a. What does convexity measure? Why does convexity differ amo..
Joe sold a put option on YYY Corp. with an exercise price of $30. The option expires tomorrow and YYY is currently trading at $26.49 per share. The option premium was $4.38 per share. What is Joe's profit or loss per share if the owner of the option ..
How does a company raise money (capital) for their projects? KOOKIS, Inc., has 3M shares of common stock, $20 per share. What is the market value of common equity? The company has 1M shares of preferred stock, $10 per share. What is the market value ..
Entergy, a large electric utility is looking to fix its cost of gas purchases over the next 3 years. Entergy currently buys gas in the spot market at the Henry Hub spot price. Describe the flow of payments if both parties agree to the swap terms.
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