What is the return in dollars and percent

Assignment Help Finance Basics
Reference no: EM132499791

Fees Are Us ("FAU") CDO has the following balance sheet ($ in mm)

Assets Liabilities

Treasury Bonds $100 Senior debt $188

High Yield Bonds $200 Subordinated debt $110

Equity $2

Total Assets $300 Total liabs and equity $300

Assume the following fixed interest rates on the above instruments:

Treasury bonds 2.10%

High Yield bonds 5.00%

Senior notes 2.20%

Subordinated notes 3.50%

Management fees are $3. The equity was bought exclusively by an investment banking who put FAU together and continues to manage the CDO.

a. What is the return, in dollars and percent, to the equity holders?

b. How was FAU able to "magnify" for its equity holders the return on the underlying bonds?

c. Why is the "return" to the equity holders in reality higher than the calculation in "a"?

Reference no: EM132499791

Questions Cloud

Explain the difference between a forward start option : Explain the difference between a forward start option and a chooser option.
Explain why delta hedging is easier : Explain why delta hedging is easier for Asian options than for regular options.
Valuable or less valuable as we increase the frequency : Does a down-and-out call become more valuable or less valuable as we increase the frequency with which we observe the asset price
What is the cash balance at the end of may : The April 1 cash balance was $321,060 and taxes of $180,000 must be paid on April 15. What is the cash balance at the end of May?
What is the return in dollars and percent : Management fees are $3. The equity was bought exclusively by an investment banking who put FAU together and continues to manage the CDO.
Determine the npv-nottingham circus : Specifically, prepaid expenses are expected to increase by $15,000, wages payable $17,000, account payable $23,000, receivables $48,500, inventory $21,500
Divided the users of financial ratios : If we divided the users of financial ratios, such as short-term lenders, long-term lenders, and stockholders, which ratios would each prefer and why?
Draw the payoff patter of positions : An investor longs 1 call options with strike at K1, shorts 2 call options with strike at K2, and longs a call options with strike at K3.
Determine npv-nottingham circus : Nottingham Circus, a polythene bag manufacturing company has employed your services as an investment

Reviews

Write a Review

Finance Basics Questions & Answers

  Determine the deposit to the nearest dollar

In five years a company will purchase equipment costing $100,000. The company decides to place a single deposit into a savings account.

  Determine the new value

Friedman Steel Corporation will pay a dividend of $1.50 per share in the next 12 months. The required rate of return is 10% and the constant growth rate is 5%.

  What is the common stockholder required rate of return

What is the common stockholder required rate of return?

  Find the input common-mode range

(a) For vB1 = vB2 = VCM = 0 V, find VE, VC1, and VC2. (b) Find the input common-mode range. (c) If vB2 =0, find the value of vB1 that increases the current in Q1: by 10%.

  Current spot and forward rates between the us and mexico

There is only one supplier of the brand of tablets you would like to stock in your store, and that firm is located in Mexico. You have researched the current spot and forward rates between the U.S. and Mexico, as indicated in Table-1:

  What is the time value of the december 110 call

The following quotes were observed for options on a given stock on November 1 of a given year. These are American calls. The stock price was 113.25.

  Sowing the seeds of corporate social responsibility

In "Sowing the seeds of corporate social responsibility" (Neisser, 2016), the article about Cargill concludes by wondering if the company's actions

  What is the service rate

Using Sally's estimate of demand that follows, how many T-shirts should she produce for the upcoming event?

  You own a bond with a face value of 10000 and a conversion

you own a bond with a face value of 10000 and a conversion ratio of 450. what is the conversion

  Interest rates likely be the same or different in 2 areas

Suppose the population of Area Y is relatively young while that of Area O is relatively old, but everything else about the two areas is equal. a. Would interest rates likely be the same or different in the two areas? Explain.

  How much will you have when the cd matures

Suppose you have $2,000 and plan to purchase a 10-year certificate of deposit (CD) that pays 6.5% interest, compounded annually. How much will you have when the CD matures?

  What is the price today for a delicious mills bond

Since then, interest rates in general have changed and the yield to maturity on the Delicious Mills bonds is now 9.38 percent. Given this information, what is the price today for a Delicious Mills bond?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd