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The Bank of Orlando has large holding of 8% fixed-rate loans. The bank’s sources of funds cost on average LIBOR - 1%.
a) If LIBOR is currently at 5%, what spread is the bank earning?
b) If LIBOR increases to 7%, what is the new spread the bank is earning?
c) Assuming the bank decides to enter into an interest rate swap that allows the bank to receive LIBOR in exchange for paying a rate of 5% fixed, what is the spread now locked in at? Show you calculations.
A fleet manager must choose between two trucks to purchase for a company's fleet. The company will keep either truck for 4 years. Truck A costs $28,000 and has a market value of $16,000 after 4 years. Truck B costs $33,000 and has a market value of $..
A fourteen-year bond, with par value equals $1,000, pays 10% annually. If similar bonds are currently yielding 9% annually, what is the market value of the bond? Use semi-annual analysis.
A company is purchasing a new machine which will cost $130,000 with additional shipping costs of $5,000 and set up and installation costs of $12,000. An additional $8,000 in Net Working Capital will be required. Calculate the total cash flows (operat..
Accessory Industries has 2 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 100 thousand bonds. If the common shares are selling for $22 per share, the preferred shares are selling for $10.50 per share,..
Grill Works and More has 6 percent preferred stock outstanding that is currently selling for $44 a share. The market rate of return is 8 percent and the firm's tax rate is 33 percent. What is the firm's cost of preferred stock?
You think a stock’s price is going to fall. If you’re right, you could make money by. Write a few sentences explaining the pros and cons of each strategy.
Jane applies for a new position with Multi-State Corporation, Inc. After the initial application review and interview, an HR manager at Multi-State does an internet search on Jane and finds that she is active in a national gay and lesbian organizatio..
You local bank quotes you an interest rate of 9% compounded monthly. If you deposit $100 today, what amount will your deposit grow to in three months? How about in one year? Suppose that the interest rate is now specified as 9% continuously compounde..
A bond that is callable has a chance of being retired earlier than it started turn to maturity. Therefore, if the yield curve is upward sloping, an outstanding callable bond should have a lower yield to maturity than an otherwise identical noncallabl..
Benjamin Garcia's start-up business is succeeding, but he needs $209,000 in additional funding to fund continued growth. Benjamin and an angel investor agree the business is worth $836,000 and the angel has agreed to invest the $209,000 that is neede..
Cash inflow in cash budgeting comes mainly from: A. Collection on accounts receivable B. Short-term debt C. Issuance of securities D. None of the above
Sara decides to buy a 6 percent, 10-year straight coupon bond for $100, which pays annual coupons of $6 at the end of each year. At the end of the first year, the bond is trading at $115. At the end of the second year, the bond trades at $100. a. Wha..
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