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An investor writes a covered call by buying one share of a stock at $50 and selling a European call option on the stock with strike price $55 at $1.25. What is his profit if he holds his position until maturity of the option and the stock price is $45 then?
a. -$6.25
b. -$ 3.75
c. -$1.25
d. $1.25
e. $3.75
Digital Organics (DO) has the opportunity to invest $1.03 million now (t = 0) and expects after-tax returns of $630,000 in t = 1 and $730,000 in t = 2. The project will last for two years only. The appropriate cost of capital is 11% with all-equity f..
If Lenberg has $12 million of investment projects having expected returns greater than 14 percent, what total amount of dividends should Lenberg pay?
Suppose you have to decide whether selling an old machine or keeping it with a major overhaul: A) Selling the machine at time zero for $750,000 with zero book value and paying the tax of 40%. Calculate the minimum annual revenue that machine has to g..
Today, you borrowed $3,100 on your credit card to purchase some furniture. The interest rate is 12 percent, compounded monthly. How long will it take you to pay off this debt assuming that you do not charge anything else and make regular monthly paym..
Nadine Chelesvig has patented her invention. She is offering a patent manufacturer two contracts for the exclusive right to manufacture and market her product. Plan A calls for an immediate single lump payment to her of $35,000.
The most effective form of business organization for raising capital is the:
Whoopie Cushions, Inc. is analyzing the proposed purchase of a new machine for $550,000. The proposed machine has an estimated economic life of six years but will be treated as five-year MACRS property for depreciation purposes. Calculate the NPV of ..
What is the approximate annual interest rate compounded annually if your money will double in 8 years if it is put in a savings account? Assume you borrow $25,000 at 8% per year interest compounded annually. You pay nothing until the end of 10 years ..
Bill Blank signed an $8,150 note at Citizen’s Bank. Citizen’s charges a 6.4 % discount rate. Assume the loan is for 310 days. Find the proceeds. Find the effective rate charged by the bank.
The Jackson–Timberlake Wardrobe Co. just paid a dividend of $1.10 per share on its stock. The dividends are expected to grow at a constant rate of 5 percent per year indefinitely. Investors require a return of 11 percent on the company's stock. What ..
If you have DuPont stock in your well diversified portfolio and DuPont has a Beta of 0.95, what is the required rate of return (Rs) for DuPont given the yield on the 2 year Treasury is 0.25% and the market risk premium is estimated at 6%?
You purchase an interest rate futures contract that has an initial margin requirement of 12% and a futures price of $152,140. The contract has a $125,000 underlying par value bond. If the futures price falls to $145,500, you will experience a ______ ..
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