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1. Calculate the price of a 9-month American call option on corn futures when the current futures price is 198 cents, the strike price is 200 cents, the risk-free interest rate is 8% per annum, and the volatility is 30% per annum. Use a binomial tree with a time interval of 3 months.
2.Consider an option that pays off the amount by which the final stock price exceeds the average stock price achieved during the life of the option. Can this be valued using the binomial tree approach? Explain your answer.
S&P 500 index has a dividend yield of 3% today. The current index is trading at $1800 and the risk-free interest rate is 5% per annum with continuous compounding. An investor would like to enter into a short one-year forward contract on the index. Wh..
An investment will pay $100 at the end of each of the next 3 years, $250 at the end of Year 4, $300 at the end of Year 5, and $600 at the end of Year 6.
The current price of a non-dividend paying stock is $30, Use a two-step tree to value a European call option on the stock with a strike price of $32 that expires in 6 months. Each step is 3 months, the risk free rate is 8% per annum with continuous c..
A bond is likely to be called if its coupon rate is below its YTM. A bond is likely to be called if its market price is below its par value. Even if a bond’s YTC exceeds its YTM, an investor with an investment horizon longer than the bond’s maturity ..
Explain whether users of financial statements should exercise caution when interpreting financial statement compliant with GAAP and explain how the choice of depreciation method affects reported profits.
Goodwill is an accounting entry equal to the difference between purchase price and the net asset value of the acquired assets. As a business manager, what do you believe goodwill represents? How could the factors that goodwill represents actually con..
Applied Nanotech is thinking about introducing a new surface cleaning machine. The marketing department has come up with the estimate that Applied Nanotech can sell 15 units per year at $305,000 net cash flow per unit for the next five years. The eng..
wxMaxima Industries just paid an annual dividend of $1.44 a share. The market price of the stock is $24.62 and the firm promises a constant growth rate in dividends of 3.5 percent. What is the firm's cost of equity?
Emily is comparing two bonds that she is thinking about purchasing. One is a municipal bond issued by her home state with a 4% yield that would be free from both federal and state taxation. Emily is in the 25% federal tax bracket and the 5% state tax..
Over 2005-2007, did the Bank of Canada respond to movements in the exchange rate in the manner described in the case study
Pumpkin Pie Industries has 5 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 10 thousand bonds. If the common shares are selling for $50 per share, the preferred shares are selling for $31 per share, a..
Jungle Recording Co. reported after tax earnings of 4,000,000 availed to common stock this year. From that the company pays a dividend of $4.00 on each of its 1,000,000 common shares outstanding. What is the before tax weighted average cost of the ca..
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