Questions from Corporate Finance

Q: What are the 1-, 2-, 3-, 4-, and

What are the 1-, 2-, 3-, 4-, and 5-year zero-coupon bond prices implied by the two trees?

Q: Suppose the 7-year zero-coupon bond has a yield

Suppose the 7-year zero-coupon bond has a yield of 6% and yield volatility of 10% and the 10-year zero-coupon bond has a yield of 6.5% and yield volatility of 9.5%. The correlation between the 7-year...

Q: Repeat the previous problem, only assuming that defaults are perfectly correlated

Repeat the previous problem, only assuming that defaults are perfectly correlated. Repeat the previous problem, Suppose that in Figure 27.6 the tranches have promised payments of $160 (senior), $50 (...

Q: Suppose your bank’s loan officer tells you that if you take out

Suppose your bank’s loan officer tells you that if you take out a mortgage (i.e., you borrow money to buy a house), you will be permitted to borrow no more than 80% of the value of the house. Describe...

Q: Suppose the S&R index is 800, the continuously compounded

Suppose the S&R index is 800, the continuously compounded risk-free rate is 5%, and the dividend yield is 0%. A 1-year 815-strike European call costs $75 and a 1- year 815-strike European put costs $4...

Q: Consider a one-period binomial model with h = 1,

Consider a one-period binomial model with h = 1, where S = $100, r = 0.08, σ = 30%, and δ = 0. Compute American put option prices for K = $100, $110, $120, and $130. a. At which strike(s) does early e...

Q: Suppose the stock price is $40 and the effective annual interest

Suppose the stock price is $40 and the effective annual interest rate is 8%. a. Draw on a single graph payoff and profit diagrams for the following options: (i) 35-strike call with a premium of $9.12....

Q: What happens to the variability of Wirco’s profit if Wirco undertakes any

What happens to the variability of Wirco’s profit if Wirco undertakes any strategy (buying calls, selling puts, collars, etc.) to lock in the price of copper next year? You can use your answer to the...

Q: Verify that going long a forward contract and lending the present value

Verify that going long a forward contract and lending the present value of the forward price creates a payoff of one share of stock when a. The stock pays no dividends. b. The stock pays discrete divi...

Q: Using the information in Table 7.1, suppose you buy

Using the information in Table 7.1, suppose you buy a 3-year par coupon bond and hold it for 2 years, after which time you sell it. Assume that interest rates are certain not to change and that you re...