Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

1) Assume that:

(a) Yield on the five-year risk-free bond is 7%.

(b) Yield on the five-year corporate bond issued by company X is 9.5%.

(c) A five-year credit default swap providing insurance against company X defaulting costs 150 basis points per year.

What arbitrage opportunity is there in this circumstance? What arbitrage opportunity would there be if credit default spread were 300 basis points instead of 150 basis points? Provide 2 reasons why arbitrage opportunities like those you identify are less than perfect.

2) Which of the given statements is correct?

a) For the project with normal cash flows, any change in WACC will alter both NPV and IRR.

b) To determine the MIRR, we first compound cash flows at regular IRR to determine the TV, and then we discount TV at the WACC to determine the PV.

c) NPV and IRR methods both suppose that cash flows can be reinvested at WACC. Though, the MIRR method supposes reinvestment at MIRR itself.

d) If two projects have same cost, and if their NPV profiles cross in upper right quadrant, then project with higher IRR probably has more of its cash flows coming in later years.

e) If 2 projects have same cost, and if their NPV profiles cross in upper right quadrant, then project with lower IRR probably has more of its cash flows coming in the later years.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M914373

Have any Question? 


Related Questions in Basic Finance

The table below shows the expected return and standard

The table below shows the expected return and standard deviation for two stocks. Is the pattern shown in the table possible? Explain your answer. Stock Beta Std. Dev. #1 1.5 22% #2 0.9 35%

Evaluate studies for a report-imagine that youre the

Evaluate studies for a report:- Imagine that you're the corporate communications vice president for Harley-Davidson Motor Company. To promote motorcycle use in the United States, you're planning a communication campaign ...

You buy a stock for 35 per share one year later you receive

You buy a stock for $35 per share. One year later you receive a dividend of $3.50 per share and sell the stock for $30 per share. What is your total rate of return on this investment? What is your capital gain or loss yi ...

1 when are tests of simple main effects used and what do

1. When are tests of simple main effects used, and what do researchers learn from them? 2. Who developed the rationale and computations for the analysis of variance? 3. Under what two circumstances would you use a multiv ...

Ethical dilemma the irs tax code allows for the deduction

Ethical Dilemma. The IRS tax code allows for the deduction of expenses incurred in traveling to a job interview. Sean, Erica, and their two children have used this deduction to fund their vacations for the last eight yea ...

Suppose chapman corporation is planning to pay a 2 per

Suppose Chapman Corporation is planning to pay a $2 per share dividend to its common stockholders. If the common stock price after the ex-dividend date is $50, what was the stock price before the ex-dividend date? $50 $5 ...

A company has 1 00000 to invest in new rampd projects the

A company has $1, 00,000 to invest in new R&D projects. The company wants to determine what set of projects should be selected.   The following table summarizes the initial cost and revenue potential for each of the proj ...

Suppose that an economy in 10000 bc used a rare stone as

Suppose that an economy in 10000 B.C. used a rare stone as its money. Suppose also that the number of stones declined over time as stones were accidentally destroyed or used as weapons. What probably happened to the valu ...

1 compare and contrast the role of the forecast support

1. Compare and contrast the role of the forecast support system, forecast technique, and forecast process. 2. Compare and contrast the basic logic differentiator of time series and causal forecast techniques. Under what ...

What are current assets if a market is price efficienta

What are current assets? If a market is price efficient, a. Can an investor "beat the market"? b. Which type of portfolio management-active or passive-is best? What does the financing decision of a firm involve? List the ...

  • 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

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

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen