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Consider a two-year maturity inverse floating-rate bond. Its coupon reset formula is 10%o-libor. Its discount rate is LIBOR+2%. Now it is at t=0 (this bond was just issued). The current LIBOR is 3% and the term structure is flat.
a. What is the price of this inverse floater?
b. What is the modified duration of this inverse floater?
c. What is the convexity of this inverse floater?
John owes $20,000; the credit card company charges him 1.5% per month on this debt. what monthly payments must he make?
Your client, Everest Corporation, is a major company with significant investment in smaller firms.
what is the annualized cost of forgoing the discount? (assume a? 365-day year)?
Calculate the forward contract hedge. Calculate the money market hedge. Calculate the option hedge.
Johnson Manufacturing is expected to pay a dividend of $1.25 per share at The End of the year (D1 = $1.25). The stock sells for $32.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, for..
What conclusions can you draw about the relationship between interest rates, time, and future sums from the calculations you have completed in this problem?
Outline three different types of financial frictions that impact on capital structure decisions.
The 1-year interest rate in the U.S. is 10%; in Switzerland it is 12%. The current spot rate (dollars per franc) is $0.40. What do you expect the 1-year forward rate to be? Is the franc selling at a premium or discount? If the expected spot rate in 1..
Acetate, Inc., has equity with a market value of $23.1 million and debt with a market value of $9.24 million. Treasury bills that mature in one year yield 6 percent per year, and the expected return on the market portfolio is 11 percent. The beta of ..
Carry-ALL plans to sell 1,300 carriers next year and has budgeted sales of $46,000 and profits of $22,000. Variable costs are projected to be $20 per unit. Michael Co. offers to pay $24,500 to buy 570 units from Carry-ALL.
You borrow $11M by issuing a par-value bond that has a 10-year maturity, promises an annual coupon payment of 5 percent, and has a face value of $10M. The expected return on this bond is also 5 percent. What is the value of this bond, as determined b..
If the market index subsequently rises by 9.0% and Ford's stock price rises by 9%, what is the abnormal change in Ford's stock price?
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