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A firm has a liability due in exactly 15 month's time equal to $125,000. Suppose the firm wishes to manage the interest rate risk of this liability (ie. immunise) using the following two bonds:
Assume both bonds pay annual coupons and that you can invest in fractions of bonds. Required:
Problem 1: Show that the value of the bond portfolio at the duration date (ie. in 15 month's time) will be sufficient to meet the liability whether interest rates EITHER (i) remain unchanged at 2% p.a., or (ii) increase to 4% p.a. Show all working. Briefly explain your answer.
Suzuki is fully insured for fire losses but must prepare a report for the insurance company. What is gross profit rate for the month of November
A U.S. company has a liability of €10 million in fixed rate bonds outstanding at 6%. A Germany company has a $15 million FRN outstanding at LIBOR. The exchange rate is $1.5/€. Calculate each party’s net borrowing cost, the principal cash flows at the..
Effective interest method of amortizing bond premium or discount. Prepare the journal entries to record the issuance of the bonds and the first interest payment
Reconstruct the adjusting entry that must have been recorded for each account. List revenue and expense amounts for the period.
On January 1, a machine with a useful life of five years and a salvage value of $15000 was purchased for $155000. What is the depreciation expense for year
You are considering investing in a new stock, Tesla (TSLA), What is the most you are willing to pay for TSLA Stock given these assumptions?
The common stock is currently trading at $10/share and there are 1 million shares outstanding. The firm has a Beta of 1.2, What is the firm's WACC?
the company plans on paying a constant $0.75 a share annual dividend indefinitely. Explain how much are you willing to pay to buy a share of this stock today if your required return is 11.6 percent?
What the annual rate of return your folks would be earning on their investment is? Your folks just called and would like some advice from you.
What must be the current price of the stock. A call option with a current value of $7.40. A put option with a current value of $6.90.
A study has been conducted to determine if one of the departments in Parry Company should be discontinued. The contribution margin in the department is $50,000 per year. Fixed expenses charged to the department are $65,000 per year. These data indica..
What amount of the foregoing revenues should be accounted for in Ariba's government all type funds?
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