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1. A company has a $37 million stock portfolio with a beta of 1.2. The S&P index futures price is currently standing at 1000. Futures contracts on $250 times the index can be traded. How many contracts is needed to reduce the beta to 0.8? If a short position is needed, report a negative number. (margin of error = +/- 1)
2. The price of a stock is $36 and the price of a three-month call option on the stock with a $36 strike is $3.60. Suppose a trader has $3,600 to invest and is trying to choose between buying 1,000 options (10 contracts) or 100 shares of stock. How high does the stock price have to rise for an investment in options to be as profitable as an investment in the stock?
3. A trader writes 100 European put options (1 contract) with a strike price of $50 and a time to maturity of six months. The price received for each option is $4. At expiration, the price of the underlying asset becomes $42. Calculate the trader's gain. If loss, report a negative number.
4. 3-yr interest rate is 5.9% and 4-yr interest rate is 6.2% (both continuously compounded). What is the forward rate (continuously compounded) for the fourth year (between yr-3 and yr-4)? Report in % and round the number to the nearest 2 decimal percentage points such as 5.78%. (margin of error = +/- 0.05%)
A 30-year maturity bond has a 6% coupon rate, paid annually. It sells today for $877.42. A 20-year maturity bond has a 5.5% coupon rate, also paid annually. It sells today for $889.5. A bond market analyst forecasts that in five years, 25-year maturi..
Night Shades Inc. (NSI) manufactures biotech sunglasses. The variable materials cost is $15.80 per unit, and the variable labor cost is $6.50 per unit. a. What is the variable cost per unit? what is the cash break-even point? If depreciation is $500,..
The beta of a firm is more likely to be high under what two conditions?
Against your advice, your little brother bought a Nolan Ryan rookie baseball card nine years ago for $250. Today the same card is selling for $2,700. What annual rate of return does this represent?
acme corp. new product development team. the team is comprised entirely of design engineers and is meeting in the
Computer stocks currently provide an expected rate of return of 16%. MBI, a large computer company, will pay a year-end dividend of $2 per share. If the stock is selling at $50 per share, what must be the market's expectation of the growth rate of MB..
Before month-end adjustments are made, the September 30 trial balance of Horton Enterprise contains revenue of $9,200 and expenses of $6,500. Calculate the correct net income for Horton’s for September.
You have just made your first $4,500 contribution to your individual retirement account. Assume you earn a 11.30 percent rate of return and make no additional contributions. What will your account be worth when you retire in 39 years? What if you wai..
Suppose Paccar’s current stock price is $108.26 and it is likely to pay a $3.06 dividend next year. Since analysts estimate Paccar will have an 5.6 percent growth rate, what is its required return?
You bought one of Great White Shark Repellant Co.’s 6 percent coupon bonds one year ago for $1,040. These bonds make annual payments and mature 11 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 5..
It is now January 1. You plan to make a total of 5 deposits of $300 each, one every 6 months, with the first payment being made today. The bank pays a nominal interest rate of 10% but uses semi annual compounding. You plan to leave the money in the b..
A nation-state whose government no longer effectively functions and has lost control of a significant portion of its territory is known as which of the following?
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