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Hedging with Bond Futures
How might a savings and loan association use Treasury bond futures to hedge its fixed-rate mortgage portfolio (assuming that its main source of funds is short-term deposits)?
Explain how prepayments on mortgages can limit the effectiveness of the hedge.
Suppose you face the prospect of receiving $1,393 per year for the next 4 years plus an extra $923 payment at the end of 4 years. Determine how much this prospect is worth today if the required rate of return is 7 percent.
Consider a four-year project with the following information: initial fixed asset investment = $500,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $35; variable costs = $26; fixed costs = $200,000; quantit..
You are scheduled to receive annual payments of $10,000 for each of the next 24 years. Your discount rate is 8 percent. What is the difference in the present value if you receive these payments at the beginning of each year rather than at the end of ..
For which of these products do Japan's exports and imports appear to be consistent with the predictions of the Heckscher-Ohlin theory? - Which appear to be inconsistent?
Potter Industries has a bond issue outstanding with an annual coupon of 6% and a 10-year maturity. The par value of the bond is $1,000. If the going annual interest rate is 8.8%, what is the value of the bond? Round your answer to the nearest cent. D..
Heginbotham Corp. issued 20-year bonds two years ago at a coupon rate of 8.3 percent. The bonds make semiannual payments. If these bonds currently sell for 104 percent of par value, what is the YTM?
Using the Yahoo Finance site or other site with stock information, choose six firms: two each from three different industries. Gather the following information for each stock: 1) beta for each of these firms; and 2) the total return for the previous ..
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.82 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be w..
Suppose rRF = 3%, rM = 9%, and rA = 15%. Calculate Stock A's beta. Round your answer to two decimal places. If Stock A's beta were 2.0, then what would be A's new required rate of return? Round your answer to two decimal places. %
Assuming zero taxes, calculate the future value of a $1,000 lump-sum contribution to a savings plan, compounded annually, at the end of: (a) five years, using a 4% rate of return; (b) thirty years, using a 8% rate of return. Show your work.
Fixed cost sources of financing include both debt and common stock. Financial risk is the basic risk inherent in the operations of a firm. It can be viewed as the volatility of a firm’s EBIT. What is the cost of capital at Marquez’ optimal capital st..
What does financial analysts rely on when researching different investments? What are two well-known market indices? What is the basis for each index? Do these market indices track a large number of stocks? If not why are they used so much? What are ..
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