International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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An investor wants to finance a project in Canada with a value of $1.5 million with a 70 percent, 25-year loan* at a nominal (face) rate of 8 percent. The project's NOI is expected to be $120,000 during year 1 and the NOI, as well as its value, is expected to increase at an annual rate of 3 percent thereafter. The lender will require an initial debt coverage ratio of atleast1.20. Assume the outgoing cap rate is equal to the ingoing cap rate and the sale in Year 4 is based on Year 5 NOI.
*Don’t forget that Canadian Mortgages compound semi-annually.
If you are not familiar with amortizing mortgages, you can use the Financial Functions in Excel. The function requires that you work with five (5) variables: Pmt, Nper (in months), Pv, Fv and Rate. Also you need to decide if the payments are at the beginning or the end of the period (they are at the end – that is you get the loan and make the first payment at theend of the first month).
d. What would be the loan-to-value ratio?
An investor wants to finance a project in Canada with a value of $1.5 million with a 70 percent, 25-year loan* at a nominal (face) rate of 8 percent. The project's NOI is expected to be $120,000 during year 1 and the NOI, as well as its value, is expected to increase at an annual rate of 3 percent thereafter. The lender will require an initial debt coverage ratio of atleast1.20. Assume the outgoing cap rate is equal to the ingoing cap rate and the sale in Year 4 is based on Year 5 NOI.
*Don’t forget that Canadian Mortgages compound semi-annually.
If you are not familiar with amortizing mortgages, you can use the Financial Functions in Excel. The function requires that you work with five (5) variables: Pmt, Nper (in months), Pv, Fv and Rate. Also you need to decide if the payments are at the beginning or the end of the period (they are at the end – that is you get the loan and make the first payment at theend of the first month).
c. Based on the projection in (a: would the lender be…
B. J. Gautney Enterprises is evaluating a security. One-year Treasury bills are currently paying 2.9 percent. Calculate the investment's expected return and its standard deviation. Should Gautney invest in this security?
Probability Return0.15 -3%0.30 2%0.40 4%0.15 6%
The investment's standard deviation is _______ % . round to two decimal places
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- An institutional investor, Gilbert Limited, is planning to purchase a straight Eurobond in order to include it in the investment portfolio. Gilbert receives following information: • Current Eurobonds in the Euromarkets are trading at a yield of 10.50% annually • An existing Eurobond with a face value of USD 2 million pays annual fixed 8.50% coupons • The bond Gilbert is considering will mature on 31 December 2022. ii. Why is the price at 15 June 2019 different from the price Gilbert should have been paid if it purchased the bond at 01 January 2019?arrow_forwardRequired:a. Calculate the dollar proceeds from the FI’s loan portfolio at the end of the year, the return on the FI’s loan portfolio, and the net return for the FI if the pound spot foreign exchange rate falls to $1.20/£1 and the lira spot foreign exchange rate falls to $0.156/TL1 over the year.b. Calculate the dollar proceeds from the FI’s loan portfolio at the end of the year, the return on the FI’s loan portfolio, and the net return for the FI if the pound spot foreign exchange rate rises to $1.40/£1 and the lira spot foreign exchange rate rises to $0.17/TL1 over the year.c. Suppose that the FI funds the $250 million U.S. loans with $250 million one-year U.S. CD at a rate of 4 percent; funds $150 equivalent British loans with $150 million equivalent one-year pound CDs at a rate of 5 percent; funds $100 million equivalent Turkish loans with $100 million equivalent one-year Turkish lira CDs at a rate of 6 percent. Assume no other changes. What will the FI’s balance sheet look like…arrow_forwardYou are given the following long-run annual rates of return for alternative investment instruments: U.S. Government T-bills 3.50% [0.0048] Large-cap common stock 11.75 [ ] Long-term corporate bonds 5.50 [ ] Long-term government bonds 4.90 [ ] Small-capitalization common stock 13.10 [ ] The annual rate of inflation during this period was 3 percent. Compute the real rate of return on these investment alternatives.arrow_forward
- With a 10 percent interest rate on dollar deposits, and an expected appreciation of 7 percent over the coming year, the expected return on dollar deposits in terms of the foreign currency is %. Question 16 options:arrow_forwardSuppose that you are the treasurer of IBM with an extra U.S. $1,000,000 to invest for six months. You are considering the purchase of U.S. T-bills that yield 1.810% (that’s a six month rate, not an annual rate by the way) and have a maturity of 26 weeks. The spot exchange rate is $1.00 = ¥100, and the six month forward rate is $1.00 = ¥110. The interest rate in Japan (on an investment of comparable risk) is 13 percent. What is your strategy?arrow_forwardSuppose that the return on a U.K. treasury bill is eight percent annum and the return on a U.S. treasury bill is eight percent annum and that you had $1,000,000 earmarked for short term investment for a period of a month. In which of the securities would you place your money? (Assume you are not a speculator). Show your calculations. 1 British pound (spot) $1.7748 1 British pound (30-day futures) $1.7776arrow_forward
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