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A futures price is currently $60. it is known that over each of the next two three-month periods it will either rise by 10% or fall by 10%. The risk-free interest rate is 8% per annum. What is the value of a six-month European call option on the futures with a strike price of $60? If the call was American, would it ever be worth exercising it early?
Grunewald Industries sells on terms of 3/10, net 50. Gross sales last year were $4,131,000, and accounts receivable averaged $482,000. Half of Grunewald's customers paid on the 10th day and took discounts. What are the nominal and effective costs of ..
Another three months have passed. You are now ready to expand to your sister city and you need more capital. You decide the wisest path is to sell some stock to outside investors, but you will maintain control over your company by holding onto the ma..
A bond with a put option: (1) Is attractive because the immediate receipt of principal plus premium produces a high return. (2) Is more likely to be puttable when the yields to maturity are higher than coupon rates. (3)Will usually have a higher yiel..
Your president bought two acres of land for $200,000 ten years ago. Although it is zoned for commercial use, it currently holds eight small, single-family houses. A property management firm that wants to continue leasing the eight houses has offered ..
Assume the standard deviation of security A is 0.3 and the standard deviation of security B is 0.22. The correlation coefficient between A and B is 0.48. What is the standard deviation of a portfolio composed of 53% security A and 47% security B?
Joey realizes that he has charged too much on his credit card and has racked up $5,200 in debt. If he can pay $175 each month and the card charges 16 percent APR (compounded monthly), how long will it take him to pay off the debt?
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,132,000 and will last for six years. Variable costs are 35 percent of sales, and fixed costs are $270,000 per year.
Explain the relationship between financial information and the financial condition of an organization. In other words, why are financial ratios and financial statements used to evaluate the health of an organization?
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 –$417,000 –$36,000 1 48,000 19,600 2 58,000 14,100 3 75,000 14,600 4 532,000 11,400 The required return on these investments is 13 percent. What is the payback..
A warrant is a long-term option from a company that gives the holder the right to buy a stated number of shares of the firm’s stock at a specified price for a specified length of time. What is the total value of the warrants and the value of each war..
A company's $100 par perpetual preferred stock has a dividend growth rate of 7 percent and a required rate of return of 11 percent. The company's earnings are expected to grow at a constant rate of 3 percent per year. If the market price per share fo..
Suppose you have to decide whether selling an old machine or keeping it with a major overhaul: A) Selling the machine at time zero for $750,000 with zero book value and paying the tax of 40%. Calculate the minimum annual revenue that machine has to g..
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