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Suppose you observe two call options on GE stock, both with exercise price of $50. Call 1 has a maturity date of November with a price of $2.30 while call 2 has a maturity date of December (exactly one month later) with a price of $2.10. What would you do? Explain your answer.
Preston Industries has a WACC of 11.58 percent. The capital structure consists of 60.5 percent equity and 35.5 percent debt. The aftertax cost of debt is 6.0 percent and the cost of equity is 14.70 percent. What is the cost of preferred stock?
The closest approximation to the real, risk-free rate of interest is
Use appropriate current Treasury bill data to determine a continuously compounded interest rate suitable to price June options. Note: You need to indicated your sources of data and document your procedure.
A company sells leaf blowers for $170 each. Each unit has a three-year warranty that covers replacement of defective parts. It is estimated that 4% of all leaf blowers sold will be returned under the warranty at an average cost of $30 each. The balan..
Your uncles is about to retire and he wants to buy an annuity that will provide him with $62000 of income a year for 20 Years, with the first payment coming immediately. The going rate on such annuites is 5.25%. How much would it cost him to buy the ..
A Treasury bill has a bid yield of 1.93% and an ask yield of 1.89%. The bill matures in 200 days. Assume a face value of $1,000. What is the least you could pay to acquire a bill?
Ratoon Company has a bond outstanding with 10 years to maturity, an 8.50 percent coupon, semi annual payments, and a $1,000 par value. The bond has a 5.50 percent yield to maturity, but it can be called in 5 years at a price of $1,140. What is the bo..
A firm has a market value equal to its book value. Currently, the firm has excess cash of $700 and other assets of $7,000. Equity is worth $7,700. The firm has 550 shares of stock outstanding and net income of $900. What will the new earnings per sha..
KFC is expected to pay a $10 dividend at the end of the year. If the required return on the stock investment is 20%, and the stock currently sells for $100.00, What is the implied dividend growth rate for this company?
Olympic Sports has two issues of debt outstanding. One is a 9% coupon bond with a face value of $32 million, a maturity of 15 years, and a yield to maturity of 10%. The coupons are paid annually. What is the before-tax cost of debt for Olympic? What ..
Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt; its beta is 1.25. Vandell's debt interest rate is 7.9%. What is the value of the unle..
Company currently has one bond issue outstanding. This bond pays a coupon rate of 10% ($100 per year) and matures in five years, and has a par value of $1,000. If you require a 14% rate of return. What is the capital gain yield of this bond in the fi..
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