PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 26, Problem 3PS
Catastrophe bonds On some catastrophe bonds, payments are reduced if the claims against the issuer exceed a specified sum. In other cases, payments are reduced only if claims against the entire industry exceed some sum. What are the advantages and disadvantages of the two structures? Which involves more basis risk? Which may create a problem of moral hazard?
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Why do noninvestment-grade bonds have much higher direct costs than investment-grade issues?
Which of the following does not relate to credit risks?
Select one:
A. Credit risk is the possibility of a loss resulting from a borrower's failure to repay a loan or meet contractual obligations
B. Credit risk also describes the risk that an insurance company will be able to pay a claim.
C. It refers to the risk that a lender may not receive the owed principal and interest
D. Credit risk describes the risk that a bond issuer may fail to make payment when requested
E. Credit risk is the possibility of losing a lender takes on due to the possibility of a borrower not paying back a loan
Counterparty credit risk is a function of the probability of default, exposure at default, and loss given default. Assuming that the individual exposure at default with a counterparty is fixed, which of the following statements is correct?
A. The probability of default can be mitigated by collateral, and exposure at default can be mitigated by netting.
B. The probability of default can be mitigated by netting, and exposure at default can be mitigated by collateral.
C. Loss given default can be mitigated by collateral, and exposure at default can be mitigated by netting.
D. Loss given default can be mitigated by netting, and exposure at default can be mitigated by collateral.
Chapter 26 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 26 - Vocabulary check Define the following terms: a....Ch. 26 - Prob. 2PSCh. 26 - Catastrophe bonds On some catastrophe bonds,...Ch. 26 - Futures and options A gold-mining firm is...Ch. 26 - Prob. 5PSCh. 26 - Prob. 6PSCh. 26 - Futures contracts List some of the commodity...Ch. 26 - Prob. 8PSCh. 26 - Futures prices Calculate the value of a six-month...Ch. 26 - Futures prices In December 2017, six-month futures...
Ch. 26 - Prob. 11PSCh. 26 - Prob. 13PSCh. 26 - Prob. 15PSCh. 26 - Prob. 16PSCh. 26 - Prob. 17PSCh. 26 - Convenience yield In March 2018, six-month bitcoin...Ch. 26 - Prob. 19PSCh. 26 - Prob. 20PSCh. 26 - Total return swaps Is a total return swap on a...Ch. 26 - Prob. 22PSCh. 26 - Prob. 23PSCh. 26 - Hedging What is meant by delta () in the context...Ch. 26 - Hedging You own a 1 million portfolio of aerospace...Ch. 26 - Prob. 26PSCh. 26 - Prob. 27PSCh. 26 - Prob. 28PSCh. 26 - Hedging Price changes of two gold-mining stocks...Ch. 26 - Prob. 30PSCh. 26 - Prob. 31PSCh. 26 - Prob. 32PSCh. 26 - Prob. 33PSCh. 26 - You are a vice president of Rensselaer Advisers...
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- In hedging, interest rate swap (IRS) can be used to hedge against rising rates, falling rates, manage asset-liability durationgaps, protecting revenue and lock-in cost of borrowing. True/Falsearrow_forwardConvertible bonds a. Provide potential benefits only to the issuer.b. Provide potential benefits only to the investor.c. Provide potential benefits to both the issuer and the investor.d. Provide no potential benefits.arrow_forwardIn hedging, interest rate swap (IRS) can be used to hedge against rising rates, falling rates, manage asset-liability durationgaps, protecting revenue and lock-in cost of borrowing.arrow_forward
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