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business
understanding management

Questions and Answers of Understanding Management

Suppose Commerce Bank sells XU Trust a two-year, $15 million FRN paying the LIBOR plus 150 basis points. The note starts on 3/20 at 9% and is then reset the next seven quarters on dates 6/20, 9/20,
Suppose Commerce Bank in Question 8 decides to hedge its two-year $15 million FRN it sold to XU Trust (FRN terms: Pays the LIBOR plus 150 basis points; starts on 3/20/Y1 at 9%; reset the next seven
Suppose UK Trust plans to invest $15 million in a two-year FRN paying LIBOR.The FRN starts on 3/20 at 7.5% and is then reset the next seven quarters on 6/20, 9/20, and 12/20. UK Trust would like to
Given the following interest-rate swap: Fixed-rate payer pays half of the YTM on a T-note of 6.5% Floating-rate payer pays the LIBOR Notional principal is $10 million Effective dates are 3/23 and
Explain how the fixed-payer and floating-payer positions in Question 1 could be replicated with positions in fixed-rate and floating-rate bonds.
What positions in a Eurodollar futures strip would be similar to the fixed-payer and floating-payer positions in Question 1? Show in the following table the cash flows for each strip position given
Note: The interest payments on the swap are determined by the LIBOR at the beginning of the period, whereas the futures position’s cash flows are based on the LIBOR at the end of its period.
Explain some of the differences between a plain vanilla swap position and a Eurodollar strip.
What are the dealer’s bid and ask quotes on a five-year swap with a quoted 60/70 swap spread over a T-note with a yield of 6.5%?
The table below shows a swap bank’s quotes on four generic swaps.Questions:a. Complete the table by calculating the swap bank’s fixed swap-rate spreads and swap rates for the four swaps.b.
The table below shows the effective dates on a 6%/LIBOR swap, the number of days between effective dates, and assumed LIBORs on effective dates. Complete the table by determining the swap’s fixed
Suppose a swap bank can go long and short in three-year FRNs paying LIBOR and three-year T-notes yielding 5%.a. Given these securities, define the three-year generic par value swap the bank could
Given the5%yield on three-year T-notes and LIBOR yields on FRNs in Question 9, how much would the swap bank pay or charge to buy an existing floating-rate payer’s position on a three-year, 6%/LIBOR
If the swap bank in Question 9 were offering three-year generic 5%/LIBOR par value swaps, how much would it pay or charge to buy a floating-rate payer’s position on an existing three-year, 6%/LIBOR
Explain the alternative ways a swap holder could close her swap position instead of selling it to a swap bank.
If the fixed rate on a new par value two-year swap were at 5%, how much would a swap dealer pay or charge to assume an existing fixed-payer’s position on a 5.5%/LIBOR generic swap with two years
The Star Chemical Company wants to finance an expansion of one of its production plants by borrowing $150 million for five years. Based on its moderate credit ratings, Star can borrow five-year funds
Suppose the Star and Moon companies in Question 15 both have the same quality ratings with the following fixed- and floating-rate loan alternatives:Questions:a. Describe each company’s absolute and
Explain the idea of comparative advantage in terms of Questions 15 and 16.
Suppose a company wants to borrow $100 million for five years at a fixed rate.Suppose the company can issue both a five-year, 11%, fixed-rate bond paying coupons on a semiannual basis and a five-year
Who generally assumes the credit risk in a brokered swap?
Who assumes the credit risk in a dealer swap?
What is one of the problems with brokered swaps that contributed to the growth in the dealer-swap market?
What does the term warehousing mean?
What does the term running a dynamic book mean?
How do dealers typically quote the fixed rate and floating rate on swap agreements they offer?
Describe the comparative advantage argument that is often advanced as the reason for the growth in the swap market.
If one borrower has a comparative advantage in the fixed-rate market and another borrower has a comparative advantage in the floating-rate market, what is the total possible interest rate reduction
If one borrower has a comparative advantage in the fixed-rate market and another borrower has a comparative advantage in the floating-rate market, what is the total possible interest rate reduction
What is the criticism that is often advanced against the comparative advantage argument?
What is the hidden option and does it relate to a difference in credit spreads in the fixed and floating credit markets?
Explain how a company could take a swap position to replace its current floating-rate debt with a fixed-rate debt obligation.
Explain how a company could take a swap position to replace its current fixed-rate debt with a floating-rate debt obligation.
Explain how a company with investments in intermediate fixed-rate notes could take a swap position to create a floating-rate note. Why might a company want to do this?
Explain how an insurance company that expects lower rates in the future could change its currently immunized position to a more speculative one with a positive duration gap.
Define the YTM approach to valuing off-market swaps.
What is the problem with using the YTM approach to value off-market swaps?
The MEJ Development Company is constructing a $300 million office park development that it anticipates completing in two years. At the project’s completion, the company plans to refinance its
Suppose the MEJ Development Company in Question 2 hedges its planned$300 million bond sale in two years by taking a position in the forward swap contract offered by Star Bank. Also suppose that at
Suppose the MEJ Development Company in Question 2 hedges its planned$300 million bond sale in two years by taking a position in the forward swap contract offered by Star Bank. Also suppose that at
XSIF Investment Trust has bonds worth $20 million in par value maturing in one year. To maintain the duration and quality ratings of its overall bond fund, the trust plans to reinvest the principal
Suppose the XSIF Investment Trust in Question 5 hedges its planned $20 million bond investment in one year by taking a position in the one-year, 6.5%/LIBOR forward swap contract offered by Fort
Suppose a speculative hedge fund anticipating higher rates in several years purchased a two-year payer swaption on a three-year 6%/LIBOR generic swap with semiannual payments and a notional principal
Show graphically and in a table the values and profits/losses at expiration that the hedge fund in Question 7 would obtain from closing its payer swaption on a 6%/LIBOR swap with a notional principal
Suppose the speculative hedge fund in Question 7 was anticipating lower rates in several years and purchased a two-year receiver swaption on a three-year 6%/LIBOR generic swap with semiannual
Show graphically and in a table the values and profits/losses at expiration that the hedge fund in Question 9 would obtain from closing its receiver swaption on a 6%/LIBOR swap with a notional
The Washington Investment Fund has a Treasury bond portfolio worth$100 million in par value that is scheduled to mature in one year. Washington plans to reinvest the $100 million of principal for
The Ebersole Software Development Company has a $25 million, 8% fixedrate bond obligation maturing in one year. The company plans to finance the$25 million principal liability by issuing new
The Zuber Bottling Manufacturing Company is considering financing the construction of its new $50 million facility by selling seven-year, 10% fixed-rate,option-free bonds at par through a private
Explain how a 10-year, 8%/LIBOR putable swap cancelable after five years can be created with positions in a 10-year 8%/LIBOR generic swap and a five-year payer swaption on a five-year 8%/LIBOR swap.
Explain how a 10-year, 8%/LIBOR callable swap cancelable after five years can be created with positions in a 10-year 8%/LIBOR generic swap and a five-year receiver swaption on a five-year 8%/LIBOR
Given a borrower can issue floating-rate notes, callable bonds, and putable bonds and can take positions in comparable generic swaps, callable and putable swaps, and receiver and payer swaptions,
Define the following swaps and give an example of their use: amortizing, accreting, and index amortizing swaps.
The table shows the annual loan rates U.S. and Canadian multinational companies can each obtain on a five-year, $100 million loan in U.S. dollars and an equivalent five-year, C$142.857 million loan
The table shows the annual loan rates U.S. and Mexican companies can each obtain on a five-year, $20 million loan in the United States and/or equivalently on a five-year 114.2857 million peso loan in
What is the bond equivalent of a currency swap position in which the counterparty agrees to swap a three-year, 10% loan of $14.6 million for a three-year, 7% loan of £10 million?
What is the bond equivalent of a currency swap position in which the counterparty agrees to swap a three-year, 7% loan of £10 million for a three-year, 10% loan of $14.6 million?
What is the forward exchange rate equivalent of a currency swap position in which the counterparty agrees to swap a three-year, 10% loan of $14.6 million for a three-year, 7% loan of £10 million?
What is the forward exchange rate equivalent of a currency swap position in which the counterparty agrees to swap a three-year, 7% loan of £10 million for a three-year, 10% loan of $14.6 million?
What is the value of an existing currency swap position in which the counterparty agrees to swap a two-year, 10% loan of $14.6 million for a two-year, 7% loan of £10 million if the current dollar
Describe comparative advantage in terms of U.S. and British multinational companies who can each obtain loans in dollars and pounds at the following rates: U.S. company British company Dollar Market
Why does urbanization impact storm water?
What are the main impacts of urbanization on storm water runoff?
What are the impacts of urbanization on runoff quantity?
Why does urbanization increase storm water volume?
Does urbanization increase the peak rate of runoff? If your answer is yes, what are the reasons?
Does urbanization impact storm water quality? If so, what are the changes?
Does urbanization increase or decrease the sediment load? Explain your answer.
Why does sediment contribute to storm water contamination?
Is the sediment a problem during construction? If so, is it more of a problem than that of postconstruction? Explain your answer.
What does the settling velocity of a particle in water depend on? How is it related to particle size?
How is sediment commonly removed from storm water?
Does urbanization increase nutrients in runoff?
Name the prime nutrients present in storm water.
What are the sources of nutrients in urban storm water?
Do nutrients have adverse impacts on water bodies? If so, list the impacts.
Are there any heavy metals in urban runoff? If so, what are they?
Where does the heavy metal in urban runoff originate?
Are pathogens bacterial or viral organisms? What are their sources in storm water runoff?
Can pathogens cause human diseases? Name an infective disease associated with pathogen bacteria.
What is the main source of sodium chloride (salt) in urban runoff?
Can salt in drinking water affect our health?
Outline the most effective measures to reduce the use of salt on roads.
Are petroleum hydrocarbons present in urban runoff? If so, where do they come from?
Do single-family homes or compact developments have a smaller impact on runoff?Explain your reason.
To properly compare impacts of developments on runoff, what should the impacts be based on?
For a wide channel, assume a velocity distribution ofwhere v is the flow velocity at a distance of d from the bed, k is the surface roughness, and u*= o / is the shear velocity. Show that the
A riprapped trapezoidal channel with a longitudinal slope of 0.3%, bottom width of 2 m, side slopes of 2:1 (2H,1V) is to carry 10 m3/s. Calculate the normal depth of water in this channel. Use: n =
Solve Problem 2.2 for a channel width of 6 ft and 350 cfs discharge.
Calculate the normal capacity and full flow velocity for reinforced concrete pipes(RCPs) of 15, 18, 24, 30, and 36 in. diameter. The pipes are at 2% grade. Use Manning’s n = 0.012.
Solve the preceding problem in metric units for RCP pipes of 300, 375, 450, 600, 750, and 900 mm diameter.
Calculate the normal flow depth in a 24 in. pipe laid at 2% slope for a discharge equal to 65% of the pipe capacity.
Calculate the normal depth of flow in a 600 mm concrete pipe for a discharge equal to 70% of the pipe capacity. The pipe is at 1.5% slope. Base your calculations on n =0.013.
The design flow for a 24 in. RCP is calculated at 30 cfs. The pipe is at 2% slope and emanates from a manhole 3.5 ft deep. The invert of the pipe is set at the bottom of the manhole. Is this pipe
A 500 mm concrete pipe is employed for conveying storm water at a rate of 400 L/s. The pipe is at 2% slope and emanates from an inlet 1.0 m deep. The invert of the pipe is set at the bottom of the
A semicircular concrete channel 1.5 m in diameter is laid on a 0.5% slope. Calculate the maximum discharge, in m3/s, that this channel can carry when the brim full. Take n =0.013.
Redo Problem 2.10 for a semicircular channel of 60 in. diameter.
Calculate the normal depth of flow in a 120 cm concrete culvert (n = 0.012) on a slope of 0.5% for a discharge of 1 m3/s.
Redo Problem 2.12 for a 48 in. culvert and 35 cfs flow.
Select the size of pipe needed to carry a discharge of 10 m3/s at no more than 65% full.The pipe is at 1% grade. Use n = 0.013. Note that large pipe comes in 150 mm diameter intervals.

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