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Anticipating an Apple appreciation, you buy a 10/2016 $120 American-style Apple call option for $2.00 today. Being an American-style, you can early exercise it in September.
1) If you early exercise this call in September, what will be the payoff in September?
2) At what Apple price in September will you early exercise? Or, will you ever early exercise it? Explain.
Harrison Corporation is interested in acquiring Van Buren Corporation. Assume that the risk-free rate of interest is 4% and the market risk premium is 4%. Van Buren currently expects to pay a year-end dividend of $2.20 a share (D1 = $2.20). Van Buren..
If as a result of taxation, consumers lose $30 surplus and suppliers lose $50 surplus, which of the following may be the size of DWL and the tax revenue received by government assuming that there was also $10 administrative burden?
Suppose a bond with face value of $1000, pays sem-annual coupons of $50 each. How big of a coupon would a bond with the same face value that pays annual coupons, have to pay, so that the bonds are equivalent?
A company currently pays a dividend of $4 per share (D0 = $4). It is estimated that the company's dividend will grow at a rate of 17% per year for the next 2 years, and then at a constant rate of 7% thereafter. The company's stock has a beta of 1.35,..
Consider the following cash flows. All market interest rates are 12% right now. Year 0 1 2 3 4 Cash Flow 160 170 180 230 1 (a) What price would you pay for these cash flows? What total wealth do you expect after 2.5 years if you sell the rights to th..
Firm S is considering adding a robotic device to its production line. The device base price is $1,038,000.00, and it would cost another $21,500.00 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates a..
Many condominium associations have regulations against any holiday decorations, flags and decorative figures being placed on the property or outside structure of the home. Some even prohibit young children from residing in the units (adult living com..
Northrop Real Estate Company management is planning to fund a development project by issuing 10-year zero coupon bonds with a face value of $1,000. Assuming semiannual compounding, what will be the price of these bonds if the appropriate discount rat..
Frasier Cabinets wants to maintain a growth rate of 5 percent without incurring any additional equity financing. The firm maintains a constant debt-equity ratio of .55, a total asset turnover ratio of 1.30, and a profit margin of 9 percent. What must..
Biopharma is a pharmaceutical company. Biopharma’s annual stock returns have a CAPM beta of 1.25 (i.e. β =1.25). The market portfolio’s return is 13%, and the risk free rate is 5%. a. What is the required expected return for Biopharma according to th..
“Financial intermediaries play a crucial role in an economic crisis–they are responsible for both causing the market to crash and then helping it recover from the crisis.” Is this statement true? Discuss with an example.
What is the present value of a $900 perpetuity if the interest rate is 3%? Round your answer to the nearest cent. If interest rates doubled to 6%, what would its present value be? Round your answer to the nearest cent.
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