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1) You go out to the market and see that MMM stock is trading for $182.03 today and the 2 year forward price is $187.26. Assume MMM doesn’t pay dividends. You also see that the interest rate is 2.1% per year, continuously compounded. Create an arbitrage portfolio that pays exactly $15 in 2 years and costs nothing today.
2) We assumed that MMM doesn’t pay dividends. Now what if MMM pays dividends at a constant rate of 3.5% per year. Create an arbitrage portfolio that pays exactly $100 today and has no obligations in the future.
3) Now suppose you don’t know what the actual interest rate is, based on the current MMM price, dividend rate, and the forward price what is the effective annual interest rate? Create a 2 year, zero coupon bond with a face value of $100 from a portfolio of stock and forward. That is, create a portfolio that costs a little less than $100 today, and at time T pays $100. Your answer should tell me exactly how many shares of stock and forward to go long/short.
Which statement will each of the following appear on Income statement, Balance sheet, or reconciliation of retained earnings?
What was the fourth year's return?
Ralph and Anne presently have $100,000 in their savings account if they wish to have $400,000 in 10 years while earning 10% interest, how much will their payment per month be?
Suppose that a major city’s main thoroughfare, which is also an interstate highway, will be completely closed to traffic for two years, from January 2014 to December 2015, for reconstruction at a cost of $535 million. Calculate the present value of t..
what should be the price of Portage Bay stock?
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Consider the following information on Stocks I and II: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock I Stock II Recession .21 .050 −.26 Normal .66 .350 .18 Irrational exuberance .13 .210 .46. Calculate the beta..
Momsen Corp. is experiencing rapid growth. Dividends are expected to grow at 28 percent per year during the next three years, 18 percent over the following year, and then 5 percent per year indefinitely. The required return on this stock is 11 percen..
You have a $48,000 portfolio consisting of Intel, GE, and Con Edison. You put $20,000 in Intel, $11,200 in GE, and the rest in Con Edison. Intel, GE, and Con Edison have betas of 1.3, 1, and .8, respectively. What is your portfolio beta?
You borrowed $700 at 5% compounded quarterly. Your payments are $150 at the end of each year. How many years will you make payments on the loan?
What would be the before-tax cost of debt (rd) for a company that currently has 10-year, 12% annual coupon bonds outstanding? The bonds are currently selling in the market for $1,200 and have a $1,000 par value. what would the company’s weighted aver..
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