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An asset manager wishes to reduce his exposure to fixed-income securities and increase his exposure to large-cap stocks. He seeks to do so using an equity swap. He agrees to pay a dealer the fixed rate of 4.5% and the dealer agrees to pay the manager the return on a large-cap index. For each of the scenarios listed below, calculate the overall payment 6 months later and indicate which party makes the payment. Assume that payments are made semi-annually (180 days per period) and there are 365 days in a year. The notional principle is $25 million.
a. The value of the large-cap index starts off at 578.50 and six months later is at 622.54
b. The value of the large-cap index starts off at 578.50 and six months later is at 581.35
Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. However, investors expect Simpkins to begin paying dividends, with the first dividend of $0.50 coming 3 years from today. what is..
After an injury, you win a lawsuit judgment of $3,334 per month starting next month for a total of 43 months. If the interest rate is 8.1% APR compounded monthly, what is the current equivalent lump sum of your settlement?
Now what will be the interest rates on a two-year bond, a four-year bond, and a six-year bond?
The correlation between RiskCorp's returns and market returns is 52%. RiskCorp's volatility? (standard deviation of annual returns) is 72% and market volatility is 23%. If the risk-free rate is 3% and the expected market risk premium is 10%, what is ..
What is the required rate of return on your company’s stock? What is the estimated value per share of your firm’s stock?
Future Value At age 25 you invest $2,200 that earns 6.5 percent each year. There is not enough information to determine which case earns most money at age 60
Bonds issued by the Coleman Manufacturing Company have a par value of $1,000, which of course is also the amount of principal to be paid at maturity. The bonds are currently selling for $950. They have 10 years remaining to maturity. The annual inter..
Gary Lee Weinrib (Mr. W) is a 60 year old divorced musician. He is planning on retiring in the next two years. He will quit touring and recording. What is a potential concern regarding royalty income from a retiring musician that may need to be addre..
A stock is trading at $90 per share. The stock is expected to have a year-end dividend of $2 per share (D1 = $2), and it is expected to grow at some constant rate g throughout time. The stock's required rate of return is 16% (assume the market is in ..
What is arbitrage? Why do arbitrage opportunities vanish quickly?
Compare the calculated present values, and discuss them in light of the fact that the undiscounted total cash flows amount to $150,000 in each case.
What is a New Markets Venture Capital Company (NMVCC)?
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