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A firm will need to borrow $15 million for three months, starting 2 years from today, at LIBOR plus 1%. If the current Eurodollar futures contract maturing in 2 years is quoted at 97.50, what is the interest rate the firm can lock in if it hedges this liability using Eurodollar futures (answer as a percent with two decimal place accuracy)? what position should the firm take to hedge it’s liability? if the actual three-month LIBOR rate increases to 4% in two years, what is the gain on the firm’s futures position (answer in $)?
Hooper printing inc has bonds outstanding with 15 years left to maturity. You are entitled to 15 more interest payments since the bonds have an 8% semi annual coupon. Par value at issue is $1000. However, due to changes in interest rates, the bond's ..
Why is it important for a business to have a low Weighted Average cost of capital (WACC)? How is the business affected negatively with a higher WACC? And how can a business lower it's WACC?
Dahlia Colby, CFO of Charming Florist Ltd., has created the firm’s pro forma balance sheet for the next fiscal year. Sales are projected to grow by 20 percent to $480 million. Prepare the current balance sheet for the firm using the projected sales ..
Kirksville Company is considering a new assembly line to replace the existing assembly line. The assembly line would require using a parcel of land that cost $800,000 three years ago. What is the initial outlay associated with this project? What is t..
How doesn a futures market operates and how might it facilitate the trade in industrial and agricultural commodities?
What is the breakeven point? What is the maximum gain for the buyer of a put option? What is his maximum loss?
On October 20,2013 you purchase a S10,000 T-note that matures on July 1,2016. The coupon rate on the T-note is 6% and the price at which you buy is 102:24. Calculate the accrued interest due to the seller from the buyer at the time of purchase. Calcu..
In a diversified portfolio, which security is the least risky? In a single-asset portfolio which would be the least risky? Why?
Given the anticipated inflation premium of 5.75% and the real rate of interest of 3.25%, what is the nominal interest rate?
Haskell Corp. is comparing two different capital structures. Plan I would result in 8,000 shares of stock and $80,000 in debt. Plan II would result in 6,000 shares of stock and $120,000 in debt. The interest rate on the debt is 6 percent. In part (a)..
As the assistant to the CFO of Johnstone Inc., you must estimate its cost of common equity. You have been provided with the following data: D0 = $0.85; P0 = $28.50; and g = 6.00% (constant). Based on the DCF approach, what is the cost of common from ..
Three put options on a stock have the same expiration date and strike prices of $55, $60, and $65. The option prices are $3, $8, and $12, respectively. How should an arbitrager take advantage of the arbitrage opportunity if it exists? (Hint: Examine ..
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