Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Financial Accounting Expert

Problem1. The zerox Company plans to issue $10,000,000 of 10-year bonds next June, with semi-annual interest payments. The company's current cost of debt is 10 percent. But, the firm's financial manager is concerned that interest rates will rise in coming months, and has decided to take a short position in U. S. government t-bond prospects. See the settle data below for t-bond futures

Month          Settle

(1)                (5)
Dec            102-16
Mar            101-08
June           100-13

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

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

c. Compute the current value of the futures position.

d. Compute the implied interest rate based on the current value of the futures position.

e. Interest rates increase as expected, by 2 percentage points. find out the present value of the futures position based on the rate computed above plus the 2 points.

f. Compute the gain or loss on the futures position.

g. Compute the overall net gain or loss.

h. Is this problem an ex of a perfect hedge or a cross hedge? Is it an ex of speculation or hedging? Why?

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M93773

Have any Question? 


Related Questions in Financial Accounting

The following selected account balances were taken from

The following selected account balances were taken from Buckeye Company's general ledger at January 1, 2018 and December 31, 2018: January 1, 2018 December 31, 2018 Accounts receivable 51,000 70,000 Inventory 39,000 28,0 ...

Use the codification to identify accounting authority

Use the Codification to identify accounting authority (location within the Codification) governing each of the following: The accounting for prepaid advertising The accounting for reclassification of short-term debt to l ...

You open a consulting business on january 1st and must

You open a consulting business on January 1st and must account for the following transactions during a one month period: Day 1: You contribute $10,000 of your own money to the business for initial expenses. Day 1: Hire a ...

Jkeb corporation had the following items during its 2012

JKEB Corporation had the following items during its 2012 tax year: Net income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $150,000 Dividends received (from less than 20% owned inve ...

A partnership has the following account balances cash 50000

A partnership has the following account balances: Cash $50,000; Other Assets $600,000; Liabilities $240,000; Nixon, Capital (50% of profits and losses) $200,000; Hoover, Capital (20%) $120,000; and Polk, Capital (30%) $9 ...

Which of these cycles would you as an auditor spend more

Which of these cycles would you, as an auditor, spend more time with? Would you suspect more misstatements in the revenues and collection cycle or in the purchases and payments cycle? Why? Give some examples to support y ...

Match the activity of the following to the fund it would

Match the activity of the following to the fund it would most likely be considered: ( Answer Key Provided and answers can be used multiple times or not at all) 1)  Police Department normal operating expenditures. 2) Proc ...

Everett miguel and ramona are partners sharing income 123

Everett, Miguel, and Ramona are partners, sharing income 1:2:3. After selling all of the assets for cash, dividing losses on realization, and paying liabilities, the balances in the capital accounts are as follows: Evere ...

Preston village engaged in the following transactionsit

Preston Village engaged in the following transactions: It issued $20 million in bonds to purchase a new municipal office building. The proceeds were recorded in a capital projects fund. It acquired the building for $20 m ...

The firmrsquos job-order costing system uses direct-labor

The firm’s job-order costing system uses direct-labor hours (measured at practical capacity) as the cost driver for overhead application. In December of the preceding year, Shar had prepared the following budget for dire ...

  • 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

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate