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Suppose that the risk-free zero curve is flat at 3% per annum with continuous compounding and that defaults can occur at times 0.25, 0.75, 1.25, and 1.75 years in a two-year plain vanilla credit default swap with semiannual payments. Suppose, further, that the recovery rate is 25% and the unconditional probabilities of default (as seen at time zero) are 1.5% at times 0.25 years and 0.75 years, and 2.0% at times 1.25 years and 1.75 years.
What would the credit default spread be if the instrument were a binary credit default swap with a payoff of $1?
Discounted Dividend Model. what is the price of the firm's perpetual preferred stock? what is the current price of Hubbard's common stock?
annual interest rates
The conversion ratio on the bond is 30 and the stock is currently selling for $39 per share. What is the minimum value of this bond?
LaPorta, Lakonishok, Shleifer, and Vishny (“Good News for Value Stocks,” Journal of Finance, June 1997) study the returns on stocks on the few days surrounding their quarterly earnings announcements (relative to various expected return benchmarks). T..
Of what significance is the DuPont system in the analysis of a firm’s financial position? How is the DuPont system used when evaluating a firm?
How would this information be used by a credit analyst as compared to someone is going to make an investment decision?
Badger Corp. has an issue of 6% bonds outstanding with 6 months left to maturity. The estimated risk premium between the company's stock and bond returns is 4%.
Consider a two period binomial model where in each round the stock increases or decreases by 10%. The current stock price is $20 and the risk free rate is 3.33% each period. We first consider a European call option with a strike of $20. Calculate val..
Effective versus nominal interest rates Bank A pays 10% interest compounded annually on deposits, while Bank B pays 9.5% compounded daily.
You plan to accumulate $136,000 over a period of 25 years by making equal annual deposits in an account that pays an annual interest rate of 15%
You are considering an investment in a U.S. corporate bond but you are not sure what rate of interest it should pay. Assume that the real risk-free rate of interest is 1.0%; inflation is expected to be 2.0%; the maturity risk premium is 1.5%; and, th..
Management has studied work patterns in the housekeeping department and estimates the number of hours to be worked as follows.
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