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The price of a stock is $40. The price of a one-year European put option on the stock with a strike price of $30 is quoted as $7 and the price of a one-year European call option on the stock with a strike price of $50 is quoted as $5. Suppose that an investor buys 100 shares, shorts 100 call options, and buys 100 put options.
A project currently generates sales of $12 million, variable costs equal 40% of sales, and fixed costs are $2.4 million. The firm’s tax rate is 40%. Assume all sales and expenses are cash items. What are the effects on cash flow, if sales increase fr..
Explain why if history records that stocks outperform bonds, why Life Insurance Companies invest so little in their general accounts. Why do you suppose Casualty Insurance companies invest even less? Do you suppose the newer insurance products such a..
What is the value of a 6-month European put option with a strike price of $42? - What is the value of a 6-month American put option with a strike price of $42?
If the returns on Stock A are as follows: Year 1 return = -2 %, Year 2 return = -20 %, Year 3 return = 20 %, Year 4 return = -17 %, and Year 5 return = -13 %, what is the average return for Stock A over this 5 year period?
Apple Inc.’s annual stock returns for the last five years are: 146.81%, 53.09%, 25.55%, 32.56%, and 8.06%. The S&P 500 Index’s annual returns for the last five years are: 23.45%, 12.78%, 0.00%, 13.41%, and 29.60%. What is Apple’s beta coefficient?
Given that higher risk investments, such as small-company stocks, have outperformed other investments over time, why don't all investors choose to invest only in these high risk securities? Explain why the reward-to-risk ratio must be equal for all s..
You are analyzing the cost of capital for a firm that is financed with 65 percent equity and 35 percent debt. The after-tax cost of debt capital is 8 percent, while the cost of equity capital is 20 percent for the firm. What is the overall cost of ca..
You have purchased a multi tenant office building for $15,000,000. Your acquisition costs associated with this purchase are $25,000. The estimated land value is $3,000,000, of which you estimate the depreciable land portion at $1,000,000. What is you..
An investor believes that there will be a big jump in a stock price, but is uncertain as to the direction. - Identify six different strategies the investor can follow and explain the differences among them.
1) WPM, Inc. has current assets of $8,000,000, current liabilities of $4,000,000, inventory of $1,320,000, and sales of $12,000,000. What is the acid test ratio?
Suppose that 3 years ago you purchased from the government of Eldorado 5-year saving bonds at a yield to maturity of 4%. However, currently as two years remain to maturity, they are trading at a yield of 20%. Assuming that the interbank rate in Eldor..
Find the hedge ratio for a put option using the data provided. Use the hedge ratio to show the loss on a portfolio of 200 shares if the portofolio is hedged with put options. The percentage loss on the shares is 2%.
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