Financial Derivative And Risk Management

Questions & Answers


17. If the nominal rate is 7.1% / year and inflation is 6.2%/year, what is the real interest rate? (Most credit for the exact calculation carried to 3 places.)

19. If interest is paid more than once a year, APR or EAR will be > APR or EAR.

20. If X-Co has sales of $168, direct expense of $99, SG&A of $31, interest expense of $8 and taxes of $7, what is X-Co's net margin? **

11. You won the lottery and have settled on the annuity option that pays $500,000/year for 20 years. If you believe you can reliably earn 4%/year, what is its value to you now?

12. X-Co's 7% unsecured bond's price declined from 99.2 to 72.4. A) What are those prices in dollars? B) Did the market yield on X-Co's bond go up or down?


4. (10 marks) Short Essay Question Assume you are the CEO of a company that intends to issue $20 M in new bonds to help finance an expansion of your manufacturing facilities. A new employee eager to catch the ear of the CEO suggests that by lowering the coupon rate of interest on the bond you will be able to reduce interest payments on the debt, and therefore interest expense on the Income Statement, thus increasing overall profitability. Is the rationale for this suggestion a good one? Explain.

10. X-Co's net profit was up 188% while its revenue tripled. What happened to its margins?

1. Portfolio Beta =1.17 Ch 02: End-of-Chapter Problems - Risk and Return: Part I Back to Assignment Attempts Keep the Highest/1 2. Problem 2-02 (Required Rate of Return) Required Rate of Return AA Corporation's stock has a beta of 0.4. The risk-free rate is 2%, and the expected return on the market is 12%. What is the required rate of return on AA's stock? Do not round intermediate calculations. Round your answer to one decimal place. Grade it Now Save & Continue Continue without saving

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