Questions from Corporate Finance

Q: Suppose that you go to a bank and borrow $100.

Suppose that you go to a bank and borrow $100. You promise to repay the loan in 90 days for $102. Explain this transaction using the terminology of short-sales.

Q: For each entry in Table 2.5, explain the circumstances

For each entry in Table 2.5, explain the circumstances in which the maximum gain or loss occurs.

Q: Consider the 3-year swap in the previous example. Suppose

Consider the 3-year swap in the previous example. Suppose you are the fixed-rate payer in the swap. How much have you overpaid relative to the forward price after the first swap settlement? What is th...

Q: Suppose that Wirco does nothing to manage the risk of copper price

Suppose that Wirco does nothing to manage the risk of copper price changes. What is its profit 1 year from now, per pound of copper? Suppose that Wirco buys copper forward at $1. What is its profit 1...

Q: Suppose the S&P 500 index is currently 950 and the

Suppose the S&P 500 index is currently 950 and the initial margin is 10%. You wish to enter into 10 S&P 500 futures contracts. a. What is the notional value of your position? What is the margin? b. Su...

Q: Suppose you are the counterparty for a lender who enters into an

Suppose you are the counterparty for a lender who enters into an FRA to hedge the lending rate on $10m for a 90-day loan commencing on day 270. What positions in zero-coupon bonds would you use to hed...

Q: Using the zero-coupon bond prices and natural gas swap prices

Using the zero-coupon bond prices and natural gas swap prices in Table 8.9, what is the implicit loan amount in each quarter in an 8-quarter natural gas swap?

Q: In each case identify the arbitrage and demonstrate how you would make

In each case identify the arbitrage and demonstrate how you would make money by creating a table showing your payoff. a. Consider two European options on the same stock with the same time to expiratio...

Q: Let S = $100, K = $95, r

Let S = $100, K = $95, r = 8% (continuously compounded), σ = 30%, δ = 0, T = 1 year, and n = 3. a. Verify that the binomial option price for an American call option is $18.283. Verify that there is ne...

Q: Let S = $100, σ = 0.30,

Let S = $100, σ = 0.30, r = 0.08, t = 1, and δ = 0. Using equation (11.12) to compute the probability of reaching a terminal node and Suidn−i to compute the price at that node, plot the risk-neutral d...