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1. Rate-Capped Swaps- Bull and Finch Company want a fixed-for-floating swap. It expects interest rates to rise far above the fixed rate that it would pay and to remain very high until the swap maturity date. Should it consider negotiating for a rate-capped swap with the cap set at 2 percentage points above the fixed rate? Explain.
2. Forward Swaps- Rider Company negotiates a forward swap, to begin two years from now, in which it will swap fixed payments for floating-rate payments. What will be the effect on Rider if interest rates rise substantially over the next two years? That is, would Rider be better off using this forward swap than if it had simply waited two years before negotiating the swap? Explain.
3. Credit Default Swaps- Credit default swaps were once viewed as a great innovation for making mortgage markets more stable. Recently, however, the swaps have been criticized for making the credit crisis worse. Why?
Your coin collection contains fifty-four 1941 silver dollars. Your grandparents purchased them for their face value when they were new. These coins have appreciated at a 10 percent annual rate
For each of the following situations, indicate how much the taxpayer is required to include in gross income: a. Steve was awarded a $5,000 scholarship to attend State Law School. The scholarship pays Steve's tuition and fees.
A Japanese company has a bond outstanding that sells for 94 percent of its ?100,000 par value. The bond has a coupon rate of 5.30 percent paid annually and matures in 15 years.
THe Joseph Company has a stock issue that pays a fixed dividend of $3.00 per share annually. Investors believe hte nominal risk-free rate is 4 percent and that this stock should have a risk premium of 6 percent.
Assume that Centerpoint's fair value of $378 million approximates fair value less costs to sell and that the present value of Centerpoint's estimated future cash flows is $383 million.
the asked discount on a 6 month treasury bill was recently quoted as 3.02 percent. Approximately how much would you have to pay to buy one of these Treasury bills ($10,000 maturity level)
The Patrick Company's year-end balance sheet is shown below. Its cost of common equity is 18%, its before-tax cost of debt is 9%, and its marginal tax rate is 40%. Assume that the firm's long-term debt sells at par value.
A Firm with a 14% WACC is evaluating two projects for this year's capital budget. After tax cash flows, including depreciation are as follows; Project A; -6,000 , 2,000, 2,000, 2,000, 2,000, 2,000
Suppose you are going to receive $ 15,000 per year for 9 years at the beginning of each year. Compute the present value of the cash flows if the appropriate interest rate is 11 percent.
What are the allocative and distributive differences between monopoly and perfect competition. What causes these differences.
Suppose the yield to maturity on a one-year zero-coupon bond is 8%. The yield to maturity on a two-year zero-coupon bond is 10%. Answer the following questions (use annual compounding).
If a firm remains in business indefinitely, the pension obligation will resemble a perpetuity. Suppose, therefore, that you are managing a pension fund with obligations to make perpetual payments of $3.0 million per year to beneficiaries.
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