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You are planning to buy 100,000 bushels of soybeans in five months. Now you want to place a hedge on 100% of your cash position (a full hedge) with futures contracts. The size of the futures contract is 5,000 bu.
a. How many futures contracts and what position do you need to place the hedge?
b. If the optimal hedge ratio is estimated as 0.85, or 85%, what is the optimal number of futures contracts you need to buy or sell?
Compute an effective annualized interest rate cost (all-in cost) for the USD tranche of the Eurobond. What information would you need to obtain the dollar all-in cost of the yen tranche? What elements would you take into account to choose between the..
A Treasury STRIPS matures in 7 years and has a yield to maturity of 9.4 percent. Assume the par value is $100,000. What is the price of the STRIPS? What is the quoted price?
A mixing praces for laboratory-grade sodium phospbate has an estimated first cost of $320000 with annual costs of $4000.
The current spot exchange rate is $1.25 = €1.00 and the three-month forward rate is $1.30 = €1.00. Consider a three-month American call option on €62,500 with a strike price of $1.20 = €1.00. If we decided to exercise this option immediately, what re..
Yoder Enterprises expects its dividends to grow at a 15 percent rate for the next two years, 8 percent over the following three years, and then at a constant 4 percent thereafter. The required return on Yoder is 9 percent and the company just paid a ..
You and your spouse are planning on buying a $200,000 house. Your bank is willing to give you a 30 year mortgage loan at 6.12%APR with monthly repayments. How much interest would you pay over the life of the loan?
What is the difference between a sterilized foreign exchange intervention and an unsterilized foreign exchange intervention?
The last dividend paid by Klein Company was $2.00. Klein’s growth rate is expected to be a constant 4 percent for 2 years, after which dividends are expected to grow at a rate of 6 percent forever. Klein’s required rate of return on equity (ks) is 8 ..
The Wall Street Journal reports that the current rate on 5-year Treasury bonds is 2.50 percent and on 10-year Treasury bonds is 4.65 percent. Assume that the maturity risk premium is zero. Calculate the expected rate on a 5-year Treasury bond purchas..
St. Benedict's Hospital exercise: . 6.5 Now, assume that the hospital uses the step-down method for cost allocation, with salary dollars as the cost driver for General Administration, housekeeping labor hours as the cost driver for Facilities, and pa..
Crawford Inc. has two bond issues outstanding, both paying the same annual interest of $55, called Series A and Series B. Series A has a maturity of 12 years, whereas Series B has a maturity of 1 year. What would the value of each of these bond when ..
Cumberland Furniture wishes to establish a prearranged borrowing agreement with a local commercial bank. The bank's terms for a line of credit are 2.80% over the prime rate, and each year the borrowing must be reduced to zero for a 30-day period. Wha..
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