Answer:
2129 futures contracts to be sold
Explanation:
Asset worth = $310 million
Asset duration = 12 years
liabilities = $248 million
Liabilities duration = 5 years
T-bond futures contracts = 104-20 (30nds)
% of assets = 310 / 248 =
<u>Determine how many futures contracts Village Bank will sell to fully hedge the balance </u>
Number of Contracts = -[Assets * (Asset Duration – (Liabilities Duration * % of Assets) / (Duration * Contract Value)]
= - [ 310 * ( 12 - ( 5 * (310/248)) / ( 8 * ( 104 + ( 20/30)) ]
= - [ 310 * ( 12 - 6.25 ) / ( 8 * 104.6667 ) ]
= - [ 310 * 5.75 / 837.3336 ]
= - 2.12878 * 1000
= 2128.78 ≈ 2129 ( number of futures contracts to be sold )
Closing cost is the term used to call for a fees associated with buying and finalizing your loan. When you say closing cost meaning you are closing a real estate transaction. From the world itself closing, meaning you are conveying the estate to the buyer.
Answer:
Increase demand for euros and Increase US dollar price of the Euro
Explanation:
The U.S travelers to Europe will require euros while in Europe. However, since the supply of euros is static i.e does not change with change in demand, there will be more people demanding for the euro resulting into increased demand for the euro. As a result, people will have to pay more US dollars to obtain euros thus increasing the US dollar price of the euro.
Answer:
14.35%
Explanation:
Simon Software Co
rs= 12%
D/E = 0.25
rRF= 6%
RPM= 5%
Tax rate = 40%.
We are going to find the firm’s current levered beta by using the CAPM formula which is :
rs = rRF+ RPM
12%= 6% + 5%
= 1.2
We are going to find the firm’s unlevered beta by using the Hamada equation:
=bU[1 + (1 −T)(D/E)]
Let plug in the formula
1.2= bU[1 + (0.6)(0.25)]
1.2=(1+0.15)
1.2= 1.15bU
1.2÷1.15
1.0435= bU
We are going to find the new levered beta not the new capital structure using the Hamada equation:
b= bU[1 + (1 −T)(D/E)]
Let plug in the formula
= 1.0435[1 + (0.6)(1)]
=1.0435(1+0.6)
=1.0435(1.6)
= 1.6696
Lastly we are going to find the firm’s new cost of equity given its new beta and the CAPM:
rs= rRF+ RPM(b)
Let plug in the formula
= 6% + 5%(1.6696)
= 14.35%