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Eric owns 100 stocks of Virginia company with a cost of $35 a stock. The stock is currently trading at $54 a share. Eric believes the price of Virginia will fall to $45 a stock in the near future but over the longer term of 3 to 5 years, increase in value to $75 a stock. Being an intelligent investor, Eric would like to benefit from the expected near term decline if it occurs. Therefore, Eric writes a covered call at a strike price of $55 and a premium of $2 (each call contract has 100 stocks)
(a) How will the covered call help profit if the expected price decline occurs?
(b) What is the maximum loss can incur from the call?
(c) What is the maximum profit Eric can incur from the call?
Romo Enterprises needs someone to supply it with 130,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. You also need an initial investment in net working cap..
You are given the following information for Smashville, Inc. Cost of goods sold: $ 209,000 Investment income: $ 2,100 Net sales: $ 392,000 Operating expense: $ 90,000 Interest expense: $ 7,400. Calculate the book value per share, earnings per share, ..
You have decided to issue a 30 year fixed rate conventional mortgage to the bank to finance the purchase of a $300,000 home. You are required to make a 20% down payment. The mortgage rate in 5% per year. You will make payments monthly. Please use Exc..
You establish a straddle on Walmart using September call and put options with a strike price of $51. The call premium is $4.30 and the put premium is $5.05. What is the most you can lose on this position? what stock prices will you break even on the ..
1. assume that you were a manager of a large department in a company and you received a request from your supervisors
Given an interest rate of 5.2 percent per year, what is the value at date t = 5 of a perpetual stream of $3,600 payments that begins at date t = 10? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Stock A has exhibited a standard deviation in stock returns of 0.5, whereas Stock B has exhibited a standard deviation of 0.6. The correlation coefficient between the stock returns is 0.5. What is the variance of a portfolio composed of 70 percent St..
You have recently won the super jackpot in the Washington State Lottery. On reading the fine print, you discover that you have the following two options: a. You will receive 32 annual payments of $160,000, with the first payment being delivered today..
Looking out over the next decade, estimate the likely standards of value creation. How would you advise a company like IBM or Cisco to configure and coordinate its value chain to prosper in this environment? Would you give the same advice to a compan..
Consider the following three stocks: a. Stock A is expected to provide a dividend of $11.90 a share forever. b. Stock B is expected to pay a dividend of $6.90 next year. Thereafter, dividend growth is expected to be 2% a year forever. what is the sto..
Explain how financial ratio analysis of a firm’s projected cash flow budget could be efficiently used by its managers for financial planning. (b) Explain why creating budgets and other financial planning is an important part of business planning.
In a slow year, Deutsche Burgers will produce 2.9 million hamburgers at a total cost of $4.3 million. In a good year, it can produce 4.9 million hamburgers at a total cost of $5.5 million. What are the fixed costs of hamburger production? What is the..
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