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Calculate and compare the risk (betas) of the following investments: In each case assume that the exercise price of the option is $430, (a) a share of Google stock; (b) a one-year call option on Google; (c) a one-year put option; (d) a portfolio consisting of a share of Google stock and a one-year put option; (e) a portfolio consisting of a share of Google stock, a one-year put option, and the sale of a one-year call. In each case assume that the exercise price of the option is $430, which is also the current price of Google stock.
A share of stock with a beta of .82 now sells for $57. Investors expect the stock to pay year-end dividend of $2. the T-bill rate is 5%, and the market risk premium is 8%. If the stock is perceived to be fairly priced today, what must be investors' e..
Imagine what the financial world would like look in both the U.S. and in the world if the Federal Reserve did not exist. Provide support for your rationale.
Your firm is contemplating the purchase of a new $555,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $55,000 at the end of that time. You will be able to reduce wo..
Calculate the mean and variance of the earnings per share for each company. - Explain how some investors might choose A and others might choose B if preferences are based on mean and variance.
An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 21% and a standard deviation of return of 39%. Stock B has an expected return of 14% and a standard deviation of return of 20%. The proportion of..
Harrison corporation is intersted in acquiring Van Buren Corporation. Assume that the risk-free rate of interest is 5%, and the market risk premium is 6%. What is the per-share value of Van-Buren to Harrison Corporation?
Why a bank lending office would be interested in the cash flow statement of a company that is applying for a loan?
We have the Fitzpatrick bond which has a convexity of 30, duration of 4, a ytm of 12% and a maturity of 25 years. The central bank is injecting huge liquidity and there is no fear of inflation. If the yields alter by 100 basis points, what would the ..
Financial ratios help us identify some of the financial strengths and weaknesses of a company. Identify four ratios we can use and explain why they are important. Provide an example of each ratio used.
The Great Giant Corp. has a management contract with its newly hired president. The contract requires a lump sum payment of $25,100,000 be paid to the president upon the completion of her first 7 years of service. The company wants to set aside an eq..
What is the probability that Jenkins will incur operating losses? What is the probability that Jenkins will operate above its breakeven point?
Compute the cost of capital for the firm for the following: a. A bond that has a $1,000.00 par value (face value) and a contract or coupon interest rate of 11.7 percent. Interest payments are $58.50 and are paid semiannually. A preferred stock that s..
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