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You manage a $10 million portfolio, all invested in equities; the beta for your portfolio is 0.70. You believe the market is on the verge of a big but short-lived downturn; you would move your portfolio temporarily to T-bills, but you do not want to incur the transaction costs of liquidating and re-establishing your equity position. You decide to temporarily hedge your equity holdings with S&P 500 index futures contracts.
a) Should you be long or short the contracts?
b) How many contracts should you enter? (Assume the S&P index is at 1500 and the contract multiplier is $250.)
How can California Plastics use futures contracts and/or options to protect itself against unfavorable price movements?
Verify this result and explain what happens to the continuously compounded 90-day forward rate as the 120-day LIBOR rate increases.
What is financial statement analysis? Select one of the ratios as your topic for discussion.
What is the Net Present Value (NPV) and Internal Rate of Return (IRR) of spending $120,000 today on law school assuming you made $5,000 more a year more for the next 35 years assuming you could invest this money elsewhere and earn 13%?
A company has favorable financial leverage when it uses borrowed funds to earn a higher rate of return than the rate of interest paid for the borrowed money.
You own a stock portfolio invested 23 percent in Stock Q, 22 percent in Stock R, 43 percent in Stock S, and 12 percent in Stock T. What is the portfolio beta?
Yung Corporation sold $2,485,000, 6%, 5-year bonds on January 1, 2014. The bonds were dated January 1, 2014, and pay interest on January 1. Yung Corporation uses the straight-line method to amortize bond premium or discount.
Roth Corp. wants to raise $3.8 million via a rights offering. The company currently has 480,000 shares of common stock outstanding that sell for $35 per share. Its underwriter has set a subscription price of $25 per share and will charge the company ..
Morris-Meyer Mining Company must install $1.7 million of new machinery in its Nevada mine. It can obtain a bank loan for 100% of the required amount. Alternatively, a Nevada investment banking from that represents a group of investors believes that i..
Explain how the Mortgage Secondary Market (Securitization) Works. Make sure to include the major plays and size of the secondary market, the pros and cons, Mortgage characteristics, and 3 types of Mortgage Backed Securities. Should we continue to hav..
A U.S. company needs to raise €50,000,000. It plans to raise this money by issuing dollar-denominated bonds and using a currency swap to convert the dollars to Euros. The company expects interest rates in both the United States and the euro zone to f..
Allon Investments Corp has a new investment product (financial asset). If an investor invests $70,000 now, the investor will receive $3,000 in one year, and each year after that, the amount the investor will receive grows by 3%. The payments will con..
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