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You own a fixed-income asset with duration of five years. If the level of interest rates, which is currently 8.5%, goes down by 15 basis points, how much do you expect the price of the asset to go up (in percentage terms)? What is the price of the asset?
Suppose stock price S=41, strike K=40, σ=0.3, r=0.06, T=0.5 and δ=0. (1) Computing the Black-Scholes call price. (Note: you may use cumulative normal function N(·) in the expression and detail every step.) (2) Suppose 40.98-strike call priced at 4.56..
When it comes to estimate Beta, what compromises do we usually make? And in your opinion, which one (or several) of these compromises are mostly likely to affect the validity of beta estimates? Please provide your reasoning.
A company is 37% financed by risk-free debt. The interest rate is 12%, the expected market risk premium is 10%, and the beta of the company’s common stock is 0.62. What is the company cost of capital? What is the after-tax WACC, assuming that the com..
What is the expected growth rate in dividends for a firm in which shareholders require a 15% rate of return and the dividend yield is 7%?
Suppose your portfolio mirrors S&P500 index and is valued currently at $1,000,000. The S&P 500 index is currently at 2,000. What action is needed to provide protection against the value of the portfolio falling below $950,000 in 6 months?
Seth borrows X from Tina and agrees to pay it back over 20 years using the sinking fund method. At the end of each year, Seth will deposit 400 into the sinking fund, as well as pay Tina the interest on the loan. If Tina charges Seth an annual effecti..
Each year, Sunshine Motos surveys 7,500 former and prospective customers regarding satisfaction and brand awareness. For the current year, The head of bookkeeping for Sunshine has prepared the following summary of costs related to the survey in the p..
You are evaluating two different cookie-baking ovens. The Pillsbury 707 costs $61,000, has a 5-year life, and has an annual OCF (after tax) of –$10,800 per year. The Keebler CookieMunster costs $94,000, has a 7-year life, and has an annual OCF (after..
8 years ago you started making annual deposits of $483 into an account paying 6% annual return. You continue to make these deposits every year without fail. If you keep doing this every year for the next 9 years, how much money will you have in 9 yea..
Forty-year old employee has never before belonged to a defined-contribution retire- ment plan. Upon seeing the investment alternatives available in the plan, she deter- mines that she needs to tilt her portfolio toward aggressive growth funds to make..
Kolby’s Korndogs is looking at a new sausage system with an installed cost of $882,000. This cost will be depreciated straight-line to zero over the project’s seven-year life, at the end of which the sausage system can be scrapped for $97,000. The sa..
Quirk and Company has been busy analyzing a new product. It has determined that an operating cash flow of $18,500 will result in a zero net present value, which is a company requirement for project acceptance. Should the company develop the new produ..
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