EBK CORPORATE FINANCE
4th Edition
ISBN: 9780134202778
Author: DeMarzo
Publisher: PEARSON CUSTOM PUB.(CONSIGNMENT)
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Chapter 19, Problem 11P
Summary Introduction
To determine: The unlevered cost of capital.
Introduction:
The
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John works for a fixed income hedge fund. Your fund invests in $100 million in mortgage-backed-bonds (MBS) with a duration of 10. He finances these bonds with $2 million in investor capital and $98 million of overnight repurchase agreements (required haircut=2%) with an interest rate of 1%.
After hours, negative news comes out on the evening news that increases yields on MBS by 25 basis points. Moreover, effective tomorrow, because of this bad news, repurchase agreement lenders will now require a haircut of 3% to lend to you via repurchase agreements with your MBS as collateral. Assuming he receives no interest payments from your MBS, how much cash does he need to not default on today’s repurchase agreement and to keep the position open for one more day tomorrow?
Please provide calculations in excel.
220
6-1. (Expected return and risk) Universal Corporation is planning to invest in a secu- LO1 LO2
rity that has several possible rates of return. Given the following probability distribu-
tion of returns, what is the expected rate of return on the investment? Also, compute
the standard deviations of the returns. What do the resulting numbers represent?
PROBABILITY
0.10
0.20
0.30
RETURN
-10%
5%
0.40
10%
25%
6-2. (Average expected return and risk) Given the holding-period returns shown here,
calculate the average returns and the standard deviations for the Kaifu Corporation Myb
and for the market.
MONTH
1
2
3
KAIFU CORP.
4%
6%
0%
2%
MARKET
2%
3%
1%
-1%
6-3. (Expected rate of return and risk) Carter, Inc. is evaluating a security. Calculate the
investment's expected return and its standard deviation.
PROBABILITY
0.15
RETURN
6%
0.30
9%
0.40
10%
0.15
15%
PART 2 The Valuation of Financial Assets
6-4. (Expected rate of return and risk) Summerville, Inc. is considering an investment in
one of…
Chapter 19 Solutions
EBK CORPORATE FINANCE
Ch. 19.1 - Prob. 1CCCh. 19.1 - Prob. 2CCCh. 19.2 - Prob. 1CCCh. 19.2 - Prob. 2CCCh. 19.3 - What is a pro forma income statement?Ch. 19.3 - Prob. 2CCCh. 19.4 - Prob. 1CCCh. 19.4 - Prob. 2CCCh. 19.5 - Prob. 1CCCh. 19.5 - Prob. 2CC
Ch. 19.6 - Prob. 1CCCh. 19.6 - Prob. 2CCCh. 19 - Prob. 1PCh. 19 - Prob. 2PCh. 19 - Prob. 3PCh. 19 - Prob. 4PCh. 19 - Under the assumptions that Idekos market share...Ch. 19 - Prob. 6PCh. 19 - Prob. 7PCh. 19 - Prob. 8PCh. 19 - Prob. 11PCh. 19 - Calculate Idekos unlevered cost of capital when...Ch. 19 - Using the information produced in the income...Ch. 19 - How does the assumption on future improvements in...Ch. 19 - Approximately what expected future long-run growth...Ch. 19 - Prob. 16P
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