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"The Aleander Company plans to issue $10,000,000 o...

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"The Aleander Company plans to issue $10,000,000 of 20-year bonds next December. The company's current cost of debt is 9 percent. However, the firm's financial manager is concerned that interest rates will increase in coming months, and has decided to take a short position in U. S. government T-bond futures. The following settle data are available for T-bond futures. Delivery Month Settle (1) (5) Dec 102-17 Mar 101-01 June 100-12 a. Calculate the current value of the futures position. b. Calculate the implied interest rate based on the current value of the futures position. c. Interest rates increase as expected, by 2 percentage points. Calculate the present value of the futures position based on the rate calculated above plus the 2 points. d. Calculate the gain or loss on the futures position. e. Calculate the present value of the corporate bonds if rates increase by 2 percentage points. f. Calculate the gain or loss on the corporate bond position. g. Calculate the overall net gain or loss. h. Is this problem an example of a perfect hedge or a cross hedge? Is it an example of speculation or hedging? Why?",Rachel, You looked at this particular problem yesterday and provided the following feedback: "Dear Student, I tried looking into your assignment, but later I found, I am unable to work on your question as I lack updated knowledge on this specific topic. I apologize for the inconvenience caused to you and would request you to feel free to get back to me in future for help required on more different questions. Please note that you will not be charged for this question. " I re-posted thinking that with your declination it might be passed on to one of the other tutors. If you wish to still take it on, I would be more than happy to work with you again. I just thought I'd save you the trouble of researching it any further. Thanks -Todd

 

Paper#10128 | Written in 18-Jul-2015

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