Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

1) ABC Company plans to issue= $20,000,000 of 20-year bonds next June, with semi-annual interest payments. Company's present cost of debt is 10%. Though, firm's financial manager is concerned that interest rates will increase in coming months, and has decided to take short position in U. S. government t-bond futures. See settle data below for t-bond futures.

Delivery
Month Settle
(1) (5)
Dec 102-17
Mar 101-01
June 100-12

a) Compute the present value of the corporate bonds if rates increase by 2 percentage points.

b) Compute the gain or loss on the corporate bond position.

c) Compute the current value of futures position.

d) Compute the implied interest rate based on present value of futures position

e) Interest rates increase as expected, by 2 percentage points. Compute current value of futures position based on the rate find outd above plus the 2 points.

f) Compute the gain or loss on futures position.

g) Compute overall net gain or loss.

h) Is this problem the ex of the perfect hedge or a cross hedge? Is it an ex of speculation or hedging? describewhy?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M915142

Have any Question? 


Related Questions in Basic Finance

1 do not-for-profit organizations other than governments

1. Do not-for-profit organizations, other than governments, use fund accounting? Comment. 2. The accounting for governments is centered on the entity concept and the efficiency of the entity. Comment 3. For governmental ...

Marks inc expect a dividend of 520 per share in one year

Marks, Inc., expect a dividend of $5.20 per share in one year from now. The rate of return is 13% and the growth rate is 6.8%. How much would you be willing to pay for Marks' stock today? If the current market price of M ...

1 is the presentation of a personal income statement

1. Is the presentation of a personal income statement appropriate? 2. GAAP as they apply to personal financial statements use the cash basis. Comment. 3. Is the concept of working capital used with personal financial sta ...

1 what is liquidity risk how do banks manage liquidity

1. What is liquidity risk? How do banks manage liquidity risk? 2. What is credit risk? How do banks manage credit risk? 3. What is interest-rate risk? How do banks manage interest-rate risk? 4. What is the difference bet ...

Ethical dilemma- rita is the office manager of a

Ethical Dilemma:- Rita is the office manager of a three-doctor practice. Her brother, Juan, a recent college graduate, recently started working for a large insurance company that specializes in health insurance. In attem ...

Ai enterprises is a computer corporation and its present

AI Enterprises is a computer corporation and its present sources of funds are $20,000,000 in equity capital and $8,000,000 in preferred stock. The company wants to fund some of its future projects (estimated cost: $12,00 ...

Jordan bought a 4 semi annual coupon bond with 25 years to

Jordan bought a 4% semi annual coupon bond with 25 years to maturity par value at $1,000. If the required rate of return (Yield to maturity) of this bond increases to 4.25%, by how much does the value of the bond change? ...

2015 tesla motors - 2e how do the findings compare with the

2015 Tesla Motors - 2E. How do the findings compare with the industry averages? Explain why you selected the proposed industry. If the company does not have a clear comparable industry then compare with three closest com ...

Dr jones conducts an experiment investigating the effects

Dr. Jones conducts an experiment investigating the effects of distraction on memory. A list of 40 two-syllable words is prepared. Dr. Jones obtains a sample of 50 students, all between the ages of 18 and 22, and presents ...

A substantial part of prestige cars ltds sales are to north

A substantial part of Prestige Cars Ltd's sales are to North America where it operates through a wholly owned subsidiary. Its principal competitors are German. It has been reported widely that Prestige Cars Ltd hedges it ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro