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1. Suppose that the pension fund you are managing is expecting an inflow of funds of $100 million next year and you want to make sure that you will earn the current interest rate of 8% when you invest the incoming funds in long-term bonds. How would you use the futures market to do this?
2. How would you use the options market to accomplish the same thing as in Problem 5? What are the advantages and disadvantages of using?
Your firm has an average collection period of 24 days. Current practice is to factor all receivables immediately at a discount of 1.4 percent. What is the effective cost of borrowing in this case?
You have been asked to determine which of the mutually exclusive projects your firm should undertake. The first one has a life of three years. It costs $150,000 and will generate cash flows of $70,000 per year. The other one has an investment of $715..
You read in The Wall Street Journal that 30-day T-bills are currently yielding 4.5%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current interest rate premiums: On the basis of these data, what..
Ferd Rumpledink, a foreign exchange trader at UBS Bank, is exploring covered interest arbitrage opportunities. He has 10,000,000 USD (or the CHF equivalent at the current spot rate) to invest and is considering a 180 day investment. Show your work on..
Using the cost approach, find the value of a small general-use building with the following characteristics.
Davis, Inc., currently has an EPS of $2.16 and an earnings growth rate of 7 percent. The benchmark PE ratio is 20. What is the target share price in 7 years?
Suppose that an investor is planning to purchase a 9% coupon bond selling at par with 4 years to maturity and plans to hold it for 4 years. The investor expects that he can reinvest the coupon payments at an annual interest rate of 8.4%. What is the ..
A project has an initial cost of $70,400, expected net cash inflows of $14,000 per year for 12 years, and a cost of capital of 8%. What is the project's NPV? (Hint: Begin by constructing a time line.) Do not round your intermediate calculations
You are provided with the following four cash flows: Option A: $20,000 received 5 years from now. Interest is compounded annually. Option B: $3,000 received at the end of each year for the next 5 years. Interest is compounded annually.
There are questions on Financial Management and Markets. Like What is the default risk premium on corporate bonds?
Consider a project with the following data: accounting break-even quantity = 5,500 units; cash break-even quantity = 5,000 units; life = eight years; fixed costs = $140,000; variable costs = $22 per unit; required return = 12 percent. Ignoring the ef..
An unlevered firm has expected earnings of $33,062.50 and a market value of equity of $287,500. The firm is planning to issue $50,000 of debt at 7 percent interest and use the proceeds to repurchase shares at their current market value. Ignore taxes...
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