Assume semi-annual rates. 2-year rates are 4% and 10-year rates are 6%. You believe that interest rates for for 8 years beginning in 2 years will be 7%. What should you do? You think rates are going up. Should you buy a floating rate note, a 5-year fixed rate bond or a 10-year fixed rate bond? Does the shape of the yield curve affect your decision? You think rates are going down. Should you buy a floating rate note, a 10-year current coupon bond or a 10-year zero coupon bond? Does the shape of the yield curve affect your decision?

Problem 9-25 Fudge factors An oil company executive is considering investing $10.1 million in one or both of two wells: well 1 is expected to produce oil worth $3.01 million a year for 10 years; well 2 is expected to produce $2.01 million for 15 years. These are real (inflation-adjusted) cash flows. The beta for producing wells is 0.91. The market risk premium is 9%, the nominal risk-free interest rate is 7%, and expected inflation is 3%. The two wells are intended to develop a previously discovered oil field. Unfortunately there is still a 21% chance of a dry hole in each case. A dry hole means zero cash flows and a complete loss of the $10.1 million investment. Ignore taxes and make further assumptions as necessary. a. What is the correct real discount rate for cash flows from developed wells? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Real discount rate b. The oil company executive proposes to add 20 percentage points to the…

A. For what values of x is f(x) NOT y 00 6 4 2 X -3-2-10 1 2 3 4 5

Answer Question 4

What about requirement 4+5

Trying to find answer a through e

Q4. What is the meaning of: b.  n/eom:

Can you answer part E of this qu

C, D, E

what is a P&L