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All interest rates are annual interest rates with semi-annual compounding.
All coupon rates are annual rates paid semi-annually.
Assume today's 6-month spot rate is 9% and in six months the new 6-month spot rate can be either (9+x)% or 8.5%. Assume also that the 1-year spot rate is 9.2% and the price of a 6-month call option on a 1-year zero-coupon bond (with a face value of $1000) with a strike price of $957 is $0.90. Keep at least 7 decimal digits for all your calculations and answers.
a) Find x
b) Without doing explicit calculations (but still referring to appropriate formulas) do you think x will increase, decrease, or remain unchanged if the option price goes down? Assume all other parameters given in these questions remain the same. Explicit calculations without verbal arguments will give you only 1 point.
The cash flows from a project is as follows: (Year 0 -3000), (Year 1 1000), (Year 2 1000), (Year 3 3000) What is the actual (annualized) return on investment.
Based on what you learned from reading this chapter and from studies you uncovered on the Web which of the financial firms listed below are most likely.
Predict what will happen to interest rates on a corporation’s bonds if the federal government guarantees today that it will pay creditors if the corporation goes bankrupt in the future. What will happen to the interest rates on Treasury securities?
Explain why the pre-payment premium is not constant on February 1, 2018.
for its fiscal year ending october 31 2014 douglas corporation reports the following partial data shown below.income
Discussion any new pension provisions. Also, why have pension costs been blamed in the Detroit bankruptcy?
Explain the primary differences between the income (discounted cash flow), relative (market-based), and asset-oriented valuation methods?
Consider the small closed economy of Islandia and its market for bananas. Currently, the domestic demand and supply curves for bananas are given by the following equations:
Kwok is a member of his employer's plan. The maximum contribution to the plan is not limited or defined in terms of other employer or registered plans
The first cash flow is two years from now. At a 10 percent compound annual interest rate, what is the present value of this unusual cash-flow pattern?
problem 1you have just turned 22 and you intend to start saving for your retirement. you plan to retire in 41 years
Discuss how quantitative research methods facilitate the decision-making process using relevant examples.
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