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Question 1:
An index is 1,200. The three-month risk-free rate is 3% per annum and the dividend yield over the next three months is 1.2% per annum. The six-month risk-free rate is 3.5% per annum and the dividend yield over the next six months is 1% per annum. Estimate the futures price of the index for three-month and six-month contracts. All interest rates and dividend yields are continuously compounded.
Question 2:
The spot price of oil is $80 per barrel and the cost of storing a barrel of oil for one year is $3, payable at the end of the year. The risk-free interest rate is 5% per annum continuously compounded. What is an upper bound for the one-year futures price of oil?
Question 3:
Explain carefully the distinction between real-world and risk-neutral default probabil¬ities. Which is higher? A bank enters into a credit derivative where it agrees to pay $100 at the end of 1 year if a certain company's credit rating falls from A to Baa or lower during the year. The 1-year risk-free rate is 5%. Using Table 23.6, estimate a value for the derivative. What assumptions are you making? Do they tend to overstate or under¬state the value of the derivative.
The company is considering two alternatives to raise the $2 million: (1) sell common stock at $10 per share, or (2) Sell bonds at a 10 percent coupon, each $1,000 bond carrying 50 warrants to buy common stock at $15 per share.
A and B Beverages expects to earn $50,000 next year after taxes. Sales will be $375,000.
On the basis of recent history, the estimated relationship between inventories and sales (in millions of dollars) is shown below.
Describe the products and the functionality of the stock market.
Objective type questions on periodic inventory system and what is the inventory method that would result in the highest ending inventory is
What are the principle causes and possible cures of disintermediation in the finance industry? What new forms of disintermediation have appeared in recent years?
Locate the financial section of the organization's most recent year report. Perform a financial analysis on your selected organization to include liquidity, efficiency, and asset management, debt management, profitability ratios, and market returns.
Question based on bonds and their valuation and Both bonds must sell for the same price if markets are in equilibrium
Computation of the forward contract at given risk free rate and calculate the price of a 9-monht forward contract on a barrel of oil
A uses debt and has interest expense of $10 million, but B has no debt and no interest expense. Calculate the tax liability of the two companies.
who had loaned (interest free) that amount to the business. The firm has no money or property to meet these obligations. How will the partnership accounts be settled?
What is the change in the expected return of the firm due to the announcement?
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