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1. The portfolio you manage is holding $5 million of Treasury bonds with a 7% coupon rate and 5 years to maturity with a price of $98 (per $100 face value). To hedge the interest-rate risk on these bonds over the coming year, should you buy call or put options?
2. Suppose that the pension fund you are managing is expecting an inflow of funds of $15 million next year and you want to make sure that you will earn the current interest rate of 6% when you invest the incoming funds in long-term bonds. How would you use the futures market to do this?
3. A thrift is planning to buy Treasury securities next month. To hedge the risk, should it buy or sell futures contracts? Explain.
Explain about derivatives. Derivative is a product whose value is derived from the value of one ormorebasic variables,Explain Products, participants and functions.
Create a real-world scenario of how you might use the PV or FV for a dollar or annuity and share with the class. Do the calculation. For example, I need to save $______ for my child’s education in 5 years. To do this, at a rate of ____%, I would need..
Procrastinators Anonymous (PA) is hosting their annual convention this coming year in Dallas, TX. Although this is not typical of this organization, they wish to plan ahead to determine what the cost of the keynote banquet ticket should be. If a tick..
Find internal growth rate. sustainable growth rate. sustainable growth rate if it pays out 42% of its net income as a dividend.
You agree to lease a car for 5 years by paying $300 per month. You are not required to pay any money up front or at the end of your agreement. Your opportunity cost of capital is 6% APR (Annual Percentage Rate). What is the cost of the lease (Present..
There are questions on Financial Management and Markets. Like What is the default risk premium on corporate bonds?
Fallway, Inc. had current assets of $121,800 and current liabilities of $114,300 last year. This year, the current assets are $118,600 and the current liabilities are $100,400. The depreciation expense for the past year is $13,500 and the interest pa..
Lisa Simpson wants to have $1,500,000 in 30 years by making equal annual end of the year deposits into a tax - deferred account paying 11.75 percent annually. What must Lisa's annual deposit be?
Wilson’s Market is reviewing a project with sales of 6,200 units plus or minus 2 percent at a sales price of $29 plus or minus 1 percent per unit. The expected variable cost per unit is $11 plus or minus 3 percent and the expected fixed costs are $87..
Suppose the average return on an asset is 12.1 percent and the standard deviation is 21.7 percent. Further assume that the returns are normally distributed. Use the NORMDIST function in Excel to determine the probability that in any given year you wi..
Fly Away, Inc., has balance sheet equity of $6.6 million. At the same time, the income statement shows net income of $798,600. The company paid dividends of $403,293 and has 100,000 shares of stock outstanding. If the benchmark PE ratio is 30, what i..
A 10-year annuity pays $2,900 per month, and payments are made at the end of each month. The interest rate is 8 percent compounded monthly for the first six years, and 6 percent compounded monthly thereafter. What is the present value of the annuity?
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