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How is liquidity a source of risk? Explain how the stockholders of a company hold an implicit put option written by the creditors ?
Identify the five types of credit derivatives and briefly describe how each works ?
Suppose your firm is a derivatives dealer and has recently created a new product. In addition to market and credit risk, what additional risks does it face that are associated more with new products?
A company has a zero-coupon bond outstanding, with face value 1,000 and a 3 year maturity. The bond is risky with a beta of 0.7. The risk free rate is 2% and the market risk premium is 6%. There are two equally likely scenarios at maturity:
A bond is likely to be called if its coupon rate is below its YTM. A bond is likely to be called if its market price is below its par value. Even if a bond’s YTC exceeds its YTM, an investor with an investment horizon longer than the bond’s maturity ..
Watters Umbrella Corp. issued 20-year bonds 2 years ago at a coupon rate of 8.6 percent. The bonds make semi annual payments. If these bonds currently sell for 107 percent of par value, what is the YTM?
What is the current required return for Encore stock? What will be the new required return for Encore stock assuming that the firm expands into European and Latin America markets as planned? If the securities analysts are correct and there is no grow..
Explain what “capital adequacy” means. Then explain how it has been used to try and address risk management of banks. Finally, as an opinion, relate if you think this has been helpful through the Basel Accords.
Several years ago, the Value Line Investment Survey reported the following market betas for the stocks of selected healthcare providers: Company Beta Quorum Health Group .90 Beverly Enterprises 1.20 HEALTHSOUTH Corporation 1.45 United Healthcare 1.70..
It is now January 1st 2008 and you are considering the purchase of an outstanding Puckett corporation bond that was issued on January 1 2006. The Puckett bond has a 9.5 percent annual coupon and a 30-year original maturity (it matures on December 31,..
Early in September 1983, it took 275 Japanese yen to equal $1. Nearly 28 years later, in August 2011, that exchange rate had fallen to 105 yen to $1. What would the dollar price of the automobile be in August 2011, again assuming that the car's price..
Bridgton Golf Academy is evaluating new golf practice equipment. The "Dimple-Max" equipment costs $99,000, has a 5 year life, and costs $9,100 per year to operate. The relevant discount rate is 12 percent. Assume that the straight-line depreciation m..
You have just purchased a new warehouse. To finance the purchase, you’ve arranged for a 35-year mortgage loan for 85 percent of the $3,800,000 purchase price. The monthly payment on this loan will be $17,900. What is the APR on this loan? What is the..
Pacific furniture,Inc. borrowed $100000 for five years at 6% annual interest payable twice per year including 10% of the total borrowed amount in each payment. please develop the payment schedule including interest, principal balance and payment. how..
Holiday Tours (HT) has an employment contract with its newly hired CEO. The contract requires a lump sum payment of $26 million be paid to the CEO upon the successful completion of her first three years of service. HT wants to set aside an equal amou..
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