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The common stock of the BDF Corporation has been trading in a narrow range around $100 per share for months, and you believe it is going to stay in that range for the next month. The price of a one-month call option with an exercise price of $105 selling for $3, while a one month put option with an exercise price of $96 and the same expiration date is selling for $2.50.
a) What options strategy, using both put and call options, could you use to exploit your conviction about the stock price’s future movement?
b) What is the most money you can make on the position?
c) What is the most you could lose on this position?
d) Is there any way to cover the losses by taking a hedged position? Explain.
e) Graph the payoffs and profits from this position
Suppose that 1 Euro could be purchased in the foreign exchange market today for $.025. If the Euro appreciated 10% tomorrow against the dollar, how many Euros would a dollar buy tomorrow?
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A project has a net present value of zero. Which one of the following best describes this project?
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You purchased one bond for $80. One year later you sold the bond for $83.25, and the coupon payment was $12. What is the RET, or the return from holding the bond over the one-year period?
Calculate NPV for each computer over its life. Rank the computers in descending order, based on NPV.- Use the equivalent annual cost (EAC) method to evaluate and rank the computers in descending order, based on EAC.
Dividend Initiation and Stock Value A firm does not pay a dividend. It is expected to pay its first dividend of $1.05 per share in 2 years. This dividend will grow at 13 percent indefinitely. Using a 15 percent discount rate, compute the current valu..
The Delta Fish Hatchery factors its accounts receivables immediately at a discount rate of 1.8 percent. The average collection period is 39 days. Assume all accounts are collected in full. What is the effective annual interest rate on this arrangemen..
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