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On November 1, the one-month LIBOR rate is 4.0 percent and the two-month LIBOR rate is 5.0 percent. Assume that Fed funds futures contracts trades at a 25 basis point rate under one-month LIBOR at the start of the delivery month. The December Fed funds futures is quoted at 94.75.
Assuming no basis risk between Fed funds and one-month LIBOR at the start of the delivery month, identify whether an arbitrage opportunity is available. Contract size is $5,000,000. Be sure to illustrate the arbitrage strategy for one contract.
To show the dollar arbitrage, assume the one-month LIBOR rate on December 1 was 7 percent.
What is the value of the bond using both semi-annual and annual discounting
A proposed cost-saving device has an installed cost of $760,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The required initial net working capital investment is $58,000, the margi..
Michael and Dianne Shankle divorced. An Arkansas state court ordered Michael to pay Dianne alimony and child support, as well as half of the $184,000 in their investment accounts. Is Michael entitled to a discharge of this debt, or does it qualify as..
Suppose that over the long run, the risk premium on stocks relative to Treasury bills has been 7.6% in the U.S. Suppose also that the current Treasury bill yield is 1.5%, but the historical average return on Treasury bills is 4.1%. Estimate the expec..
Over the last year the rates of return on these corporate stocks followed a normal distribution with mean 12.2% and standard deviation 7.2%.
Stu wants to earn a real return of 3.4 percent on any bond he acquires. The inflation rate is 2.8 percent. He has determined that a particular bond he is considering should have an interest rate risk premium of .27 percent, a liquidity premium of .08..
A bond market price is $ 950. It has a $ 1000 Par value, will mature in 6 years, and has a coupon interest rate f 8 percent annual interest, but makes its interest payment semiannually. What is the bond's yield to maturity? What happens to the bond's..
Which models have the greatest following, discounting models (like IRR and NPV) or non time value of money models (like payback and accounting rate of return)?
Suppose your gross monthly income of $7,000. Assume that you expect property taxes and insurance to be $300 per month. In addition, assume you have automobile and student loan payments of $450 per month. If 30 year fixed rate mortgages have a current..
Suppose that you bought Mike Inc. three years ago at $20.50 per share and you can now sell it for 21.74 per share now. Also, Mike Inc. has paid an annual dividend of $0.50, $0.47, and $0.63 in years one, two, and three. Ignoring the issue of Time Val..
The net working capital returns to its original level at the end of the project. The project is expected to generate annual sales of $550,000 and costs of $430,000. The tax rate is 35 percent and the required rate of return is 15 percent. What is ..
important in order to receive full credit you need to answer the questions with a minimum of twoparagraphs. use one
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