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Suppose Blank Company has only one project, as forecast above, and an unlevered cost of equity of 8%. If the company borrows $10,000 at 5% to make the investment, what is the return to equity holders if demand is strong?
Collateralized Debt Obligation
A complex structured finance product that pools together cash flow-generating assets and repackages them into tranches for sale to investors.
Credit Default Swap
A financial derivative or contract that allows an investor to "swap" or offset their credit risk with that of another investor.
Loan
A sum of money borrowed that is expected to be paid back with interest.
Asset Securitization
The process of pooling various types of contractual debt such as mortgages, and selling their related cash flows to third party investors as securities.
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