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Maverick Manufacturing, Inc., must purchase gold in three months for use in its operations. Maverick’s management has estimated that if the price of gold were to rise above $1,610 per ounce, the firm would go bankrupt. The current price of gold is $1,530 per ounce. The firm’s chief financial officer believes that the price of gold will either rise to $1,765 per ounce or fall to $1,420 per ounce over the next three months. Management wishes to eliminate any risk of the firm going bankrupt. Maverick can borrow and lend at the risk-free EAR of 7.5 percent.
a. Should the company buy a call option or a put option on gold?
a2. What strike price would the company like this option to have?
b. How much should such an option sell for in the open market?
c. Suppose no options currently trade on gold. What are the transactions needed to create a synthetic option with identical payoffs to a traded option?
d. How much does the synthetic option cost?
Rihab just got a new job and wants to roll over her retirement account from her previous job at a large corporation into an IRA. Rihab should speak to a finacial palnner to make sure she follows the rollover rules to avoid taxes.
question 1the underlier is trading at a spot price of 100. the ten year riskless interest rate is trading at 10 p.a.
A synthesis of contemporary market orientation perspectives
Your friend just won the lottery. He has a choice of receiving $50,000 a year for the next 20 years or a lump sum today. The lottery uses a 15% discount rate, compounded monthly. What would be the lump sum your friend would receive?
A new common stock issue that paid a $1.79 dividend last year. The firm's dividends are expected to continue to grow at 7.3 percent per year forever. The price of the firms common stock is now $27.43. What is the cost of common equity?
Suppose you purchase a call option for $5 and a strike price of $40. On the expiration day, the price of the stock is $55. What is the return on the call option if you hold your position until maturity?
You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a very common practice with expensive, high-tech equipment). The scanner costs $5,700,000 and it would be depreciated straight-line to zero over..
You estimate the sales price to be $10 per unit and sales volume to be 3,000 units in year 1; 10,000 units in year 2; and 1,000 units in year 3. The project has a three-year life. Variable costs amount to $3 per unit and fixed costs are $25,000 per y..
Grossman Enterprises has an equity multiplier of 3.08 times, total assets of $1,596,000, an ROE of 15.10 percent, and a total asset turnover ratio of 3.15 times. Calculate the firm’s sales and ROA.
A firm has $900 millions of current assets, including $300 millions of inventory. It has $500 millions of current liabilities. What's the firm's quick ratio?
To minimize collection float, a firm should do which of the following?
Scott Investors, Inc., is considering the purchase of a $371,000 computer with an economic life of four years. The computer will be fully depreciated over four years using the straight-line method. The market value of the computer will be $71,000 in ..
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