What is credit default swap and why is it useful financial product

Q: You find the following corporate bond quotes. To calculate the number of years until maturity,…

A: A bond's interest payment made in relation to its face value, or par, is known as the coupon rate.…

Q: Assume there is a stock whose current price is $50. The stock price one year from now can be either…

A: Given:Current stock price (S0) = $50Stock price one year from now (S1) = $40 or $60Risk-free rate…

Q: A nine year project involves equipment costing $2,320,000 that will be depreciated using the…

A: 1. After tax salvage value of the equipment = Pre-tax  salvage value - Tax expenses on sale of…

Q: Problem 2-33 Income Statement (LG2-1) Listed below is the income statement for Tom and Sue Travels,…

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Q: Wealth management you make should be based on your current financial condition, age, and economic…

A: The adage "Wealth management you make should be based on your current financial condition, age, and…

Q: hael wants to have $68,000 in 12 years on a savings plan that requires monthly contributions. If he…

A: Future value of investment includes the amount being deposited over the years and amount of interest…

Q: The following table shows your stock positions at the beginning of the year, the dividends that each…

A: CompanySharesBeginning of year PriceDividend Per ShareEnd of Year PriceUS…

Q: Calculating Annuity Payments You want to be a millionaire when you retire in 40 years. How much do…

A: Retirement period = 40 yearsInterest rate = 10.2%Amount = $1,000,000

Q: Matt plans to start his own business once he graduates from college. He plans to save $1,700 every…

A: Future value is the value of all payments accumulated or annuity paid at future date with interest…

Q: The Redwood Company is financed entirely with equity. The company is considering a loan of $20…

A: To calculate the increase in firm value attributed to the interest tax shield of the loan, we can…

Q: a zero coupon bond has a face value of $100 and 10 years to maturity. Interest accrues on the bond…

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Q: Suppose you conduct currency carry trade by borrowing $1,000,000 at the start of each year and…

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Q: Karen obtained a $25,000 loan at 4.5% compounded semiannually. a-1. What monthly payment will repay…

A: The present value concept is useful for borrowers to assess the affordability of a loan. By…

Q: ewly issued bond pays its coupons once a year. Its coupon rate is 4.3%, its maturity is 10 years,…

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Q: Goode Inc.'s stock has a required rate of return of 12.00%, and it sells for $27.00 per share.…

A: This is based on the dividend discount model.As per the dividend discount model the value of a stock…

Q: Negative covenants tend to be less significant than affirmative covenants because they place direct…

A: > The answer is "FALSE"

Q: You have looked at the current financial statements for J&R Homes, Company. The company has an EBIT…

A: Free cash flow method is to calculate the value of firm and value of equity which in return used to…

Q: Suppose you observe the following rates in a market. $0.80 = 1.0 euros $1.50 = 1.00 pounds 0.55…

A: Arbitrage is a concept that helps investors gain profit due to the difference in exchange rates…

Q: Gluon Incorporated is considering the purchase of a new high pressure glueball. It can purchase the…

A: Equivalent annual cost represents the cost of an asset incurred relating to operating &…

Q: 2 decimals places are needed to answer this question.

A: According to Black Scholes Model, the option value is calculated as shown below.

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A: Additional profit = $12,000 per yearInitial investment = $17,000 Salvage value = $3,200Annual…

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A: WACC stands for Weighted Average Cost of Capital. It is a financial metric that represents the…

Q: Hook Industries's capital structure consists solely of debt and common equity. It can issue debt at…

A: Capital budgeting refers to the process of evaluating and selecting long-term investment projects or…

Q: Calculate all possible liquidity ratios for 2021 and 2020. (Round current ratio to 2 decimal places…

A: "Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the question and…

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Q: 4) The premium of a call option with a strike price of $45 is equal to $4.5 and the premium of a…

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Q: Assume that all interest is simple interest. Fred started a new e-Commerce business and borrowed…

A: Given data:> Time (T) = 10 years .> Interest (I) = 4440> Price (P)= $ 14800> Rate(R) =?

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Q: You are considering a new product launch. The project will cost $2,050,000, have a 4-year life, and…

A: “Hi There, thanks for posting the question. But as per Q&A guidelines, we must answer the first…

Q: You are bullish on XYZ stock. The current market price is $100 per share, and you have $10,000 of…

A: Margin call refers to the amount which is deficit to maintain the maintenance margin account.

Q: Your parents have accumulated a $130,000 nest egg. They have been planning to use this money to pay…

A: Data given: Current savings=$130000 Nail Salon financing=$22000 Year end vacation cost per…

Q: Give typing answer with explanation and conclusion What regular interest payment will grandmamma…

A: The time value of money (TVM) is a financial concept that recognizes the potential difference in…

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A: Dividend is the profit or share of profits which is being distributed to shareholders. As per…

Q: er Corporation is considering replacing a machine. The replacement will reduce operating expenses​…

A: Operating cash flows are the cash flow generated from the operation of machine and that include tax…

Q: The Fourth Corp. is evaluating extra cash dividends versus share repurchases. In either case, $6,675…

A: Some time when company have extra cash than company pay dividends or may repurchase own shares from…

Q: Create an internal cash budget based on the following information: Sales = $50,000 Rent = $20,000…

A: Budget is the estimation of revenue and expense prior to start the operation. To manage the working…

Q: Two alternative locations are under consideration for a new plant: Jackson, Mississippi, and Dayton,…

A: Annual Profit Refers to the contribution less fixed costs and other debt obligations for the company…

Q: Katty bought a stock at $40 per share using 60% initial margin. The broker charges 8% on the loan…

A: The margin account refers to the brokerage account where the investor needs to invest only a part of…

Q: An engineer plans to deposit $3000 at the end of each year into a retirement account that pays 4%…

A: FV =P x [(1+r)n - 1] / rWhere: FV = Future value P = Amount deposited each year r = Interest rate…

Q: Gluon Incorporated is considering the purchase of a new high pressure glueball. It can purchase the…

A: Equivalent annual cost represents the cost of an asset incurred relating to operating &…

Q: Value of Operations: Constant FCF Growth   EMC Corporation's current free cash flow of $450,000…

A: When we are to calculate the value of operation we will considering the total growth and total free…

Q: Find the duration of a bond with settlement date June 13, 2018, and maturity date December 19, 2027.…

A: Bond duration is a measure of the sensitivity of a bond's price to changes in interest rates. It…

Q: Consider the following bonds: (Click on the following icon in order to copy its contents into a…

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Q: A company currently pays a dividend of $1.8 per share (D0 = $1.8). It is estimated that the…

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Q: You intend to purchase a 1-year, $1,000 face value bond. Coupon rate of this bond is 24%. Market…

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Q: Charisma is able to pay $1250 a month for a 25-year mortgage with end of month payments. Because of…

A: It is a case of loan amortization where the monthly payment is given with a 20% down payment done…

Swaps

A swap is a derivative contract in which two parties are agreed to exchange their cash flows from two different financial instruments for a defined period. In swap contracts, cash flows from one financial instrument are fixed and cash flow from other financial instruments is variable based on the interest rate, exchange rate, and commodity price. Swap contracts are transacted in an over-the-counter system. Swap contracts are utilized to hedge risk and mitigate loss.