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A call option on Jupiter Motors stock with an exercise price of $100 and one-year expiration is selling at $6. A put option on Jupiter stock with an exercise price of $100 and one-year expiration is selling at $4.5. If the risk-free rate is 8% and Jupiter pays no dividends, what should the stock price be?
Dream, Inc., has debt outstanding with a face value of $7 million. The value of the firm if it were entirely financed by equity would be $18.3 million. The company also has 450,000 shares of stock outstanding that sell at a price of $30 per share. Th..
Berkshire Hathaway Inc. (NYSE: BRK.A) would like to hedge its $5 million exotic insurance portfolio by using S&P 500 futures. Having heard about your excellent grades in the Derivatives class, Berkshire chairman Warren E. Buffett has hired you as a c..
You've been saving up for a new car that you think costs $25,000. You already have $10,000 and you think that, with interest and additional savings, the $10,000 will grow to $20,000 in three years. Suddenly, the phone rings and a voice at the other e..
Coca-Cola is considering jumping on the pomegranate bandwagon by producing Poma-Cola and Pomegranate Sprite carbonated beverages in 2016 (t=1). New production equipment and facilities costing $30 million will be required in 2015 (t =0) and fall into ..
In mid-2015, Coca-Cola Company (KO) had a share price of $39. Its dividend was $1.00 per year, and you expect Coca-Cola to raise this dividend by approximately 7% per year in perpetuity.If Coca-Cola’s equity cost of capital is 8%, what share price wo..
You think a stock’s price is going to fall. If you’re right, you could make money by. Write a few sentences explaining the pros and cons of each strategy.
In December 1995 Boise Cascade’s stock had a beta of 0.95. The Treasury bill rate at the time was 5.8% and the Treasury bond rate was 6.4%. Assume the term structure of interest gives a 200 bp (basis point – a basis point is 1/100 of a %) spread betw..
Are financial statements always transparent? How can financial statements be manipulated to show short-term gains? Present some real-life cases.
The two principal agencies that regulate the export of goods from the U.S. are:
(Cost of debt) Gillian Stationery Corporation needs to raise $569,000 to improve its manufacturing plant. It has decided to issue a $1,00 par value bond with an annual coupon rate of 8.4% with interest paid semi-annually at 15-year maturity. Investor..
What is the company’s federal income tax bill for the year? Assume that the firm receives an additional $40,000 of interest income from the bonds it owns. What is the tax on this interest income?
Keyser Mining is considering a project that will require the purchase of $980,000 in new equipment. The equipment is in a seven-year MACRS class. The equipment can be scrapped at the end of the project for 5 percent of its original cost. What is the ..
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