Reference no: EM131980571
Your firm needs to raise $93.8 million in funds. You can borrow short term at a spread of 1.0% over LIBOR.? Alternatively, you can issue 10?-year, fixed-rate bonds at a spread of 2.48% over 10?-year ?Treasuries, which currently yield 7.54%. Current 10?-year interest rate swaps are quoted at LIBOR versus the 7.9% fixed rate.
Management believes that the firm is currently? "underrated" and that its credit rating is likely to improve in the next year or two.? Nevertheless, the managers are not comfortable with the interest rate risk associated with using?short-term debt.
a. Suggest a strategy for borrowing the $93.8 million. What is your effective borrowing? rate?
Borrow $93.8 million short term and paying LIBOR+1.0%. Then enter a $93.8 million notional swap to receive LIBOR and pay ______ fixed. Effective borrowing rate is ______
b. Suppose the? firm's credit rating does improve three years later. It can now borrow at a spread of 0.50%
over? Treasuries, which now yield 9.02% for a? seven-year maturity. ? Also, seven-year interest rate swaps are quoted at LIBOR versus 9.68%.
How would you lock in your new credit quality for the next seven? years? What is your effective borrowing rate? now?
Refinance $93.8 million? short-term loan with? long-term loan at ______ . Unwind swap by entering new swap to pay LIBOR and receive _______
Effective borrowing cost? now:.
What is the current share price
: If the required return on this stock is 12.5 percent, what is the current share price?
|
What was your holding period return on the bond
: What was your holding period return (HPR) on the bond over the past two years, if the current YTM is 7%,
|
Weekly standard deviation of the stock price calculated
: Bear Stearns stock price closed at $98, $103,$58,$29,$4 over five consecutive weeks. weekly standard deviation of the stock price calculated from this sample is
|
Distributions to shareholders
: From the e-Activity, contrast the differences between a stock dividend and a stock split. Imagine that you are a stockholder in a company.
|
The interest rate risk associated with using?short-term debt
: Nevertheless, the managers are not comfortable with the interest rate risk associated with using?short-term debt.
|
What will be the published exchange rate
: What will be the published exchange rate for United States of America Dollar in Germany be one year from now, ceteris paribus.
|
What steps were taken to overcome the cannibalization
: Identify two corporations that have dealt with cannibalization and what steps were taken to overcome the cannibalization.
|
Assume the rate of return on both funds portfolios
: Assume the rate of return on both funds’ portfolios (before any fees) is 6% per year. How much will an investment of $100 in each fund grow to after 10 years?
|
Planning for retirement
: Erich and Mallory are 22, newly married, and ready to embark on the journey of life. They both plan to retire 45 years from today.
|