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Suppose that the European options with the same maturity and the same underlying assets have the following prices:
(1) a 50-strike call costs $9;
(2) a 50-strike put costs $7;
(3) a 55-strike call costs $10;
(4) a 55-strike put costs $6.
(i) Some of the monotonicity conditions for no-arbitrage is violated by the above premiums.
Which ones?
(ii) Which spread position would you use the create an arbitrage?
(iii) Substantiate your answer to part (ii) by demonstrating that using that particular spread one obtains a non-negative profit in all states of the world and strictly positive profit with positive probability.
If the firm follows a maturity matching (or moderate working capital financing policy) what is the most likely total of long term debt plus equity capital?
Swannee Resorts is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated by the straight line method over the project's 3 year life, with zero salvage value.
all of the terms and paperwork necessary to export products and services can be very confusing. please explain the
Mesa Company specializes in the production of small fancy picture frames, which are exported from the U.S. to the United Kingdom. Mesa invoices the exports in pounds and converts the pounds to dollars when they are received.
the bostitch co. has just gone public. under a firm commitment agreement bostitch received 32.70 for each of the 4.17
From your answers to Parts a, b, and c, which project would be selected? If the WACC was 18%, which project would be selected?
discount rates will vary based upon your own personal level of risk tolerance. for example i might be willing to buy a
Find out the range of annual cash inflows for each of the two projects. Suppose that the firm's cost of capital is 10% and that both projects have 20-year lives. Develop a table similar to this for NPVs for each project. Comprise the range of NPVs ..
The inventory has a book value of $53,300 and an estimated market value of $71,200. If the store compiled a balance sheet as of today, what would be the book value of the current assets?
Its cost of equity is 19 percent, the cost of preferred stock is 6.5 percent, and the pre-tax cost of debt is 7.5 percent. What is the firm's WACC given a tax rate of 34 percent?
How is an investor's choice of which security to purchase related to his degree of risk aversion and calculate the standard deviation of the return on the security.
Explain the role of the United State Federal Reserve, Federal Reserve Chairman, & Board, indicating its effectiveness in today's economic environment. Provide support for rationale.
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