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1. Call Options Consider a 1-period binomial model with R=1.02, S0=100, u=1/d=1.05. Compute the value of a European call option on the stock with strike K=102. The stock does not pay dividends. Please submit your answer rounded to two decimal places. So for example, if your answer is 3.4567 then you should submit an answer of 3.46.
2. Call Options II When you construct the replicating portfolio for the option in the previous question how many dollars do you need to invest in the cash account? Please submit your answer rounded to three decimal places. So for example, if your answer is −43.4567 then you should submit an answer of −43.457.
After reading all about the tax advantages of having a high leverage ratio, the CEO of WMart is considering a leveraged recapitalization and wants to know the value of his firm subsequent to the recap. Using the information above regarding WMart an..
The yield to maturity of a $1000 bond with a 7% coupon rate, semiannual coupons, and two years to maturity is 7.6% APR, compounded semiannually, what must its price be?
Some companies like Nike and Southwest Airlines openly try to recruit couples. Do you think is a good idea? How would you feel working in a department with couple?
Master Tech is a new software company that develps and markets productivity software for municipal government applications. In developing their income statement, the following fomulas are used: Gross profit = Net sales - Cost of sales Net operating p..
$50,000 is invested in such a way as to repay the investor an interest payment of $1,000 at the end of each quarter for 10 years. At the end of the 10 years, the $50,000 is returned in a lump sum. As soon as his interest payment is received, it is de..
Bond Pricing. A General Power bond carries a coupon rate of 8%, has 9 years until maturity, and sells at a yield to maturity of 7%. (Assume annual interest payments.) (LO6-1 and LO6-2) a. What interest payments do bondholders receive each year? b. At..
How does the riskiness of the project "Full Building Ownership" compare to the riskiness of the project "Levered Building Ownership"?
For year ended 12/31/15, a corporation had cash flow from operating activities of $55,000, cash flow from investment activities of -$35,000, and cash flow from financing activities of -$45,000. The Statement of Cash Flows would show a…
What kinds of financial innovations have arisen in the U.S. from attempts to get around U.S. bank branching restrictions? What are some of the most important financial innovations that have been introduced in the U.S. since the 1950s, and what has le..
A pension plan is obligated to make disbursements of $2.7 million, $3.7 million, and $2.7 million at the end of each of the next three years, respectively. Find the duration of the plan's obligations if the interest rate is 10% annually.
The cost of capital for a project depends on A.
On may 1,2008 your client won 21.25 million in the Wisconsin lottery. The lottery commission gave them the option of receiving a lump sum or a 25-year annuity paying 850,000 each year, with the first payment received on May 1, 2008 and the last payme..
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