Q) when is a floating rate preferred advantageous to an investor? a) if market interest rate...
Q) when is a floating rate preferred advantageous to an investor? a) if market interest rate have increased b) if market interest rates have declined c) if the company's earnings have increased d) doesn't benefit the investor, benefits the company
Homework Answers
Floating rate interest proves advantageous to an investor when the interest rate increases. Because, investor can get the benefit of incresing interest rate in the market, had he invested in fixed interest rate, he would have received low interest rate as compared to the market (when interest rate has increased now compared to the low interest rate at the time of entering into the contract),
therefore the answer is (a) Increased interest rate.
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Q) when is a floating rate preferred advantageous to an
investor? a) if market interest rate...
6. A floating rate bond A. Typically pays interest that varies periodically with changes in some...
6. A floating rate bond A. Typically pays interest that varies periodically with changes in some specified market interest rate like the yield to maturity on 1-year Treasury bonds B. Typically floats with the dollar against other currencies C. Will always have higher returns required by investors than fixed-rate bonds D. Always has a market price that floats with the stock market E. Typically has a put feature that enables investors to buy it at a floating price 7. A...
Explain why an Interest Rate Swap (assume LIBOR as the floating rate) with quarterly settlement (assume...
Explain why an Interest Rate Swap (assume LIBOR as the floating
rate) with quarterly
settlement (assume 90 days per quarter) can be viewed as a strip of
Eurodollar futures
contracts. (Note: A strip is a sequence of ED futures with
successive expirations)
(b) The following table gives the bid and offer fixed rates in the
swap market and the
corresponding swap rates
(i) Suppose that Company X can invest for 4 years at 4.5%.
Recommend a floating
rate, can it...
22. Which of the following statements concerning preferred stocks is true? a. Preferred stockholders have anrior...
22. Which of the following statements concerning preferred stocks is true? a. Preferred stockholders have anrior claim on the income and assets of the firm as compared to the claims of lenders. b. Preferred stock dividends per share are normally increased as the earnings of the firm increase. c. Preferred dividends per share are usually not cut or suspended unless the firm is faced with serious financial problems. d. The par value of a stock is always the same as...
In a period when interest rates are expected to rise, _______ institutions will want a fixed-for-floating...
In a period when interest rates are expected to rise, _______ institutions will want a fixed-for-floating swap, and the fixed rate specified on interest rate swaps will be _______ under these conditions. A. many; lower B. many; higher C. few; lower D. few; higher
1. When the investors duration gap is negative: A. Reinvestment risk dominates, and the investor is...
1. When the investors duration gap is negative: A. Reinvestment risk dominates, and the investor is at risk of lower rates. B. The investor is hedged against interest rate risk. C. Market price risk dominates, and the investor is at risk of higher rates. D. The investor is at risk of both lower rates and higher rates. Please explain your answer.
A corporation with long-term fixed-rate debt might prefer floating-rate debt if they thought that: A. interest...
A corporation with long-term fixed-rate debt might prefer floating-rate debt if they thought that: A. interest rates would be increasing. B. their bond rating might be lowered. C. interest rates would be declining. D. their bonds were going to be converted into equity.
Company E presently has access to floating interest rate funds at a margin of 3% over...
Company E presently has access to floating interest rate funds at a margin of 3% over LIBOR. Its direct borrowing cost is 12% in the fixed-rate bond market. In contrast, company F has access to fixed-rate funds at 11% and floating-rate funds at LIBOR+1%. Is the fixed rate or the floating rate the better deal for Company E? Select one: a. Fixed rate b. Can't tell from the information given. c. Variable rate
7 10 00 poirs Problem 17-22 Floating rate preferred stock [LO17-5] Ine. has two classes of...
7 10 00 poirs Problem 17-22 Floating rate preferred stock [LO17-5] Ine. has two classes of prefermed rate preferred stock and straight (normal) preferred stock Both issues have a per value of $100. The foang-rae preferred stock pays 0 percent Since the iswuance of the two securities, interest rates have gone up by 1 00 percent for each issua securities will pary their year-end dividend and round your answer to 2 decimal places.) b. What is the price of the...
A savvy investor paid $5,000 for a 20-year $10,000 mortgage bond that had a bond interest...
A savvy investor paid $5,000 for a 20-year $10,000 mortgage bond that had a bond interest rate of 10% per year, payable quarterly. Three years after he purchased the bond, market interest rates went down, so the bond increased in value. If the investor sold the bond for $13,000 three years after he bought it, what rate of return did the investor make per quarter and per year (nominal)? The rate of return per quarter is D % The rate...
QUESTION 2. In the late 1960s advocates of a floating exchange rate system argued that one...
QUESTION 2. In the late 1960s advocates of a floating exchange rate system argued that one advantage of a world monetary system with market determined exchange rates is that it would impose symmetry on the system. A. Discuss in what ways a system of fixed exchange rates, such as Bretton Woods, is asymmetric. What does asymmetric mean in this context? Why might it be advantageous for the world community to impose symmetry on the system? B. Do floating exchange rates...
Explain why an Interest Rate Swap (assume LIBOR as the floating
rate) with quarterly
settlement (assume 90 days per quarter) can be viewed as a strip of
Eurodollar futures
contracts. (Note: A strip is a sequence of ED futures with
successive expirations)
(b) The following table gives the bid and offer fixed rates in the
swap market and the
corresponding swap rates
(i) Suppose that Company X can invest for 4 years at 4.5%.
Recommend a floating
rate, can it...
22. Which of the following statements concerning preferred stocks is true? a. Preferred stockholders have anrior claim on the income and assets of the firm as compared to the claims of lenders. b. Preferred stock dividends per share are normally increased as the earnings of the firm increase. c. Preferred dividends per share are usually not cut or suspended unless the firm is faced with serious financial problems. d. The par value of a stock is always the same as...
7 10 00 poirs Problem 17-22 Floating rate preferred stock [LO17-5] Ine. has two classes of prefermed rate preferred stock and straight (normal) preferred stock Both issues have a per value of $100. The foang-rae preferred stock pays 0 percent Since the iswuance of the two securities, interest rates have gone up by 1 00 percent for each issua securities will pary their year-end dividend and round your answer to 2 decimal places.) b. What is the price of the...
A savvy investor paid $5,000 for a 20-year $10,000 mortgage bond that had a bond interest rate of 10% per year, payable quarterly. Three years after he purchased the bond, market interest rates went down, so the bond increased in value. If the investor sold the bond for $13,000 three years after he bought it, what rate of return did the investor make per quarter and per year (nominal)? The rate of return per quarter is D % The rate...
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