Stock price is going to decline from its current level

Assignment Help Financial Management
Reference no: EM13932616

Suppose you believe that Delva Corporation's stock price is going to decline from its current level of $82.50 sometime during the next 5 months. For $510.25 you could buy a 5-month put option giving you the right to sell 100 shares at a price of $85 per share. If you bought this option for $510.25 and Delva's stock price actually dropped to $60, what would your pre-tax net profit be?

a. $1,989.75

b. $2,193.70

c. -$510.25

d. $2,303.38

e. $2,089.24

Reference no: EM13932616

Questions Cloud

What is fee charged by the bank for issuing new equity : In order to raise new equity Grimm Inc. employs Speed Bank. Grimm wants to raise $28 million in equity for a new project (not including the fee paid to the investment bank). Grimm keeps a constant debt-to-value ratio equal to 40%. What is the fee cha..
Major expansion-what is the component cost of debt : To help finance a major expansion, Castro Chemical Company sold a noncallable bond several years ago that now has 20 years to maturity. This bond has a 9.25% annual coupon, paid semi annually, sells at a price of $1,075, and has a par value of $1,000..
The firm will not be issuing any new common stock : You were hired as a consultant to Quigley Company, whose target capital structure is 35% debt, 10% preferred, and 55% common equity. The interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the cost of common from retained earning..
What is the required rate of return on the market : Mulherin's stock has a beta of 1.23, its required return is 11.75%, and the risk-free rate is 4.30%. What is the required rate of return on the market? (Hint: First find the market risk premium.)
Stock price is going to decline from its current level : Suppose you believe that Delva Corporation's stock price is going to decline from its current level of $82.50 sometime during the next 5 months. For $510.25 you could buy a 5-month put option giving you the right to sell 100 shares at a price of $85 ..
Call options that expire in three months with a strike price : Warner Motors’ stock is trading at $20 a share. Call options that expire in three months with a strike price of $20 sell for $1.50. Which of the following will occur if the stock price increases 10%, to $22 a share?
Estimate of the stocks current market value : Nachman Industries just paid a dividend of D0 = $1.32. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What..
What is the companys cost of preferred stock : Bosio Inc.'s perpetual preferred stock sells for $97.50 per share, and it pays an $8.50 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by investors. What is the company's..
What is the portfolios beta : Mike Flannery holds the following portfolio: What is the portfolio's beta?

Reviews

Write a Review

 

Financial Management Questions & Answers

  Free cash flows-determined that the EV-EBITDA for the firm

Next year free cash flows for the AA company is expected to be $10 million. It is expected to grow for the following two years at 10% and then for 9% for the following year. You have determined that the EV/EBITDA for the firm in year 5 is expected to..

  The stock is expected to pay dividend

The stock is expected to pay dividend of $3.0 and currently is selling at $30. What is its expected dividend yield? If the dividend is expected to grow at constant rate of 5%, what is its total return?

  Do the different policies provide an incentive to be safer

You own a house worth $400,000 that is located on a river. If the river floods moderately, the house will be completely destroyed. This happens about once every 50 years. If you build a seawall, the river would have to flood heavily to destroy your h..

  About the gift tax liability

Barry and his wife Mary have accumulated over $4 million during their 45 years of marriage. They have three children and five grandchildren. How much money can Barry and Mary gift to their children in 2008 without any gift tax liability? How much mon..

  Default-free yield-what would be price of corporate bond

If there is no chance of default what would be the price of this corporate bond? if there is no chance of default, then the required rates of return for money at various horizons is given by the Treasury zero yield curve above. Given these rates, wha..

  How soon will you pay off the loan-new length in years

Suppose you take out a 30 year mortgage for $ 275000 at 4.75% interest. The monthly payments on this loan are $ 1434.53. If you pay an extra 40% per month on your mortgage, how soon will you pay off the loan?

  What rate should firm use to discount projects cash flows

Titan Mining Corporation has 8.9 million shares of common stock outstanding and 330,000 5 percent semiannual bonds outstanding, par value $1,000 each. What is the firm's market value capital structure? If Titan Mining is evaluating a new investment p..

  What is the modified internal rate of return mirr how is it

bullwhat is net present value npv how is it calculated and what is the basic premise of its decision rule?bullwhat is

  Statement of cash flows-increase in property-plant

Under the indirect method of determining the net cash provided by operating activities on the statement of cash flows, an increase in property, plant, and equipment is subtracted from net income.

  Determine the modified internal rate of return for project

Determine the modified internal rate of return for a project that costs $75,000 and would yield after-tax cash flows of $12,000 the first year, $14,000 the second year, $17,000 the third year, $19,000 the fourth year, -$23,000 the fifth year, and $29..

  Determine fishers working capital investment

Determine Fisher's working capital investment. Determine Fisher's current ratio. Determine Fisher's return on stockholders' equity if its 2010 earnings after tax are $10,000(000).

  What analyses might a manager do to learn more about a

financial management 3 essay questions apa format250 words each question 2 cited sources each question.no

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd