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Carl is an option writer. In anticipation of a depreciation of the British pound from its current level of $1.50 to $1.45, he has written a call option with an exercise price of $1.51 and a premium of $.02. If the spot rate at the option's maturity turns out to be $1.54, what is Carl's profit or loss per unit (assuming the buyer of the option acts rationally)?
Five years ago you took out a 15-year mortgage with biweekly payments (you make a payment every two weeks) to purchase your home. The interest rate is 7% per year and the biweekly payment is $800. What is the outstanding balance on the mortgage if th..
When forecasting financial statements, after forecasting the income statement and then the balance sheet, what account is plugging the first time the balance sheet is out of balance?
MLK Bank has an asset portfolio that consists of $200 million of 15-year, 12.5-percent-coupon, $1,000 bonds with annual coupon payments that sell at par. a-1. What will be the new prices if market yields change immediately by ± 2.00 percent? What is ..
Assume that there are two three-year bonds with face values equaling $1000. The coupon rate of bond A is .05 and .08 for bond B. A third bond C also exists, with a maturity of two years. Bond C has a face value of $1000; it has a coupon rate of 11%. ..
A stock has yielded returns of 6 percent, 11 percent, 14 percent, and -2 percent over the past 4 years, respectively. What is the standard deviation of these returns?
Any forecast of financial requirements involves determining how much money the firm will need and is obtained by adding together increases in assets and spontaneous liabilities and subtracting operating income. The projected balance sheet method of f..
What documents should a financial planner have ready for a client at the final presentation stage of the financial plan and part of a financial planner's role is educational. Explain why this role has become more important in recent years.
Two firms merge (companies A & B) and company A is going to assume all the assets and liabilities of the two companies. Current market value of company A is $150 million and current market value of company B is $87 million. The merger is predicted to..
You have obtained the following data for a firm: (1) Rd = yield on the firm's bonds = 7.00% and the risk premium over its own debt cost = 4.00%. (2) Rf = 3.00%, RPM = 6.00%, and beta = 1.25. (3) D0 = $1.20, P0 = $35.00, and g = 6.00% (constant). You ..
Walmart is considering opening a small experimental store in New York City. A store is expected to have a long economic life, but the valuation horizon is 15 years. The store in New York is likely to generate revenues of $34M in the first year and th..
What is the expected rate of return to equity-holders if the firm has a 35% tax rate, a 10% rate of interest paid on debt, a 15% WACC, and a 60% debt to value ratio?
Jack’s Construction Co. (JCC) has 80,000 bonds outstanding that are currently selling at par (face) value. Bonds with similar characteristics are currently yielding 8.5%. The company also has 4 million shares of common stock outstanding. The stock ha..
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