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a. Suppose that oil forward prices for 1year and 2 years are $110 and $95. The one- year effective annual interest rate is 2.7% and the two-year rate is 3%. What is the two-year swap price?
b. Suppose you observe a swap price of $100 instead of the result you calculated ina). Construct a portfolio that allows you to make a risk-free profit based on this mispricing and calculate the amount of that profit.
You have accumulated some money for your retirement. You are going to withdraw $92386 every year at the beginning of the year for the next 16 years starting from today. Your account pays you 4.07 percent per year, compounded annually. How much money ..
All the major world markets are considered efficient. In a well-diversified portfolio, company specific risks vanish and the total risk of the portfolio reduces to its market risk. Deviations from purchasing power parity can result in real foreign cu..
Calculating Project NPV [LO 2] Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2,640,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, af..
Assume that the risk-free rate of interest is 6% and the expected rate of return on the market is 17%. A share of stock sells for $57 today. It will pay a dividend of $4 per share at the end of the year. Its beta is 1.1. What do investors expect the ..
The firm is evaluating a project that will add revenues of $325,000 annually for 5 years. The project has $225,000 of annual operating costs (including depreciation). The necessary equipment costs $350,000 and has a five-year life with straight line ..
Determine specific strategies to manage budgets within forecasts and Compare five to seven expense results with budget expectations, and describe possible reasons for variance
Which of the following statements about direct claims is most accurate?
Django Inc. is a new IPO and will not pay any dividends for the next 5 years. Branco’s will pay $0.25 of dividends at the end of the six year. The firm plans to raise its dividend by 70% the year after that time. The required rate of return for Djang..
Kenny, Inc., is looking at setting up a new manufacturing plant in South Park. The company bought some land six years ago for $7.5 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent fac..
Compute the discounted payback statistic for Project C if the appropriate cost of capital is 9 percent and the maximum allowable discounted payback period is three years.
Your bank owns adjustable rate mortgages (ARMs) that are priced at three month LIBOR plus 1 percent. There is an annual cap on the allowable rate increase equal to a maximum of 1 percent a year. Thus, if LIBOR rises by 3 percent, the bank can raise t..
To estimate the cost of capital, you need to include an estimate of the cost of debt and calculate the weighted average cost of capital for your company.) Estimate the free cash flows to the firm for the future.
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