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We know that a vanilla bond with a coupon rate below the market rate of interest will sell for a discount and that a vanilla bond with a coupon rate above the market rate of interest will sell for a premium. What kind of bond or loan will sell at its par value regardless of what happens to the market rate of interest? A brief answer is appreciated.
Define the following legal requirements of an enforceable contract: 1, Offer and acceptance 2. Offer and acceptance 3. Competent parties 4. Consideration
A European cash-or-nothing call pays its holder a fixed amount F if the price at expiration time is larger than K and pays 0 otherwise.
You have 100 business clients who own businesses that you insure against floods. The probability density function of the number of claims k per year for these 100 clients when rainfall is at or below average (which happens 50% of the time) is describ..
Schwarzentraub Industries' expected free cash flow for the year is $600,000; in the future free cash flow is expected to grow at a rate of 8%. The company currently has no debt, and its cost of equity is 12%. Its tax rate is 40%. Find VL if Schwarzen..
Chris invests X at the beginning of each year for 8 years. The original payments earn an annual effective interest rate of 5%, but the interest received on the original payments is reinvested at an annual effective interest rate of 3.5%. If Chris has..
Suppose that the pension fund you are managing is expecting an inflow of funds of $100 million next year and you want to make sure that you will earn the current interest rate of 8% when you invest the incoming funds in long-term bonds. How would you..
Compute the cost of capital for the firm for the following: Currently bonds with a similar credit rating and maturity as the firms outstanding debt are selling to yield 8% while the borrowing firms corporate tax rate is 34%. Common stock for a firm t..
A local finance company quotes a one-year loan at an interest rate of 18 percent. So, if you borrow $19,000, the interest for the year will be $3,420. What rate would legally have to be quoted? What is the effective annual rate?
If the market price of the warrants is $8 and the common stock price is $24 a share, what is the premium over the formula value for the warrants?
The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). (B) Two years from now, the YTM on yo..
If a company pays each camera PAT member a base wages of $21,000, thereby resulting in base wages of $84,000 per 4-person PAT,
The S&P 500 index is currently priced at 1,400. The dividend yield on the index is zero. The current risk free rate is 5%. What is the no-arbitrage forward price for delivery in 6 months? You are a market maker. Demonstrate how you would hedge your p..
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