Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Chapter 31, Problem 12P
Summary Introduction
To determine: The implied credit spread for the Russian government bonds.
Introduction:
Credit spread: The difference in the yield between the two bonds of similar maturity, except for the credit rating.
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Assume that the U.S. interest rate is 7 percent and the euro’s interest rate is 4 percent. Assume that the euro’s forward rate has a premium of 2 percent.
a. What is the effective financing rate from financing with euros? Should a U.S. firm finance with euros?
Suppose that the term structure of risk-free interest rates is flat in the United States and Australia. The USD interest rate is 6.7% per annum and the AUD rate is 5.9% per annum. The current value of the AUD is 0.57 USD. Under the terms of a swap agreement, a financial institution pays 3.5% per annum in AUD and receives 6.2% per annum in USD. The principals in the two currencies are $12 million USD and 20 million AUD. Payments are exchanged every year, with one exchange having just taken place. The swap will last two more years. What is the USD value of the swap to the financial institution? Assume all interest rates are continuously compounded.
Suppose that the term structure of risk-free
interest rates is flat in the United States and
Australia. The USD interest rate is 5.9% per
annum and the AUD rate is 5.7% per annum. The
current value of the AUD is 0.57 USD. Under the
terms of a swap agreement, a financial institution
pays 2.0% per annum in AUD and receives 5.0%
per annum in USD. The principals in the two
currencies are $12 million USD and 20 million
AUD. Payments are exchanged every year, with
one exchange having just taken place. The swap
will last two more years. What is the USD value
of the swap to the financial institution? Assume
all interest rates are continuously compounded.
Enter your answer rounded to the nearest integer,
Chapter 31 Solutions
Corporate Finance
Ch. 31.1 - Prob. 1CCCh. 31.1 - What implication do internationally integrated...Ch. 31.2 - Prob. 1CCCh. 31.2 - When do these two methods give the same NPV of the...Ch. 31.3 - Prob. 1CCCh. 31.3 - Prob. 2CCCh. 31.4 - Prob. 1CCCh. 31.4 - Prob. 2CCCh. 31.5 - What conditions cause the cash flows of a foreign...Ch. 31.5 - Prob. 2CC
Ch. 31 - You are a U.S. investor who is trying to calculate...Ch. 31 - Prob. 2PCh. 31 - Etemadi Amalgamated, a U.S. manufacturing firm, is...Ch. 31 - Prob. 4PCh. 31 - You work for a U.S. firm, and your boss has asked...Ch. 31 - Prob. 6PCh. 31 - Prob. 7PCh. 31 - Prob. 8PCh. 31 - Prob. 9PCh. 31 - Prob. 10PCh. 31 - Prob. 11PCh. 31 - Prob. 12PCh. 31 - Prob. 13P
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