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(Concept Problem) Suppose you are asked to assist in the design of an equity-linked security. The instrument is a five-year zero coupon bond with a guaranteed return of 1 percent, compounded annually. At the end of five years the bond will pay an additional return based on any appreciation of the Nikkei 300 stock index, a measure of the performance of 300 Japanese stocks. The risk-free rate is 5.5 percent, compounded annually, and the volatility of the index is 15 percent. In addition the index pays a dividend of 1.7 percent continuously compounded. Presently the index is at 315.55 and the additional return is based on appreciation above the current level of the index. You expect to sell these bonds in minimum increments of $100. Overall you expect to sell $10 million of these securities. Your firm has determined that it needs a margin of $175,000 in cash today to cover costs and earn a reasonable profit. Determine the percentage of the Nikkei return that your firm should offer to cover its costs. Your firm would then set the percentage offered at less than this. If your firm sells this security, comment on the risk it creates for itself and suggest how it might deal with that risk.
bruce invests 2000 in a mint condition nolan ryan baseball card. he expects the baseball card to increase 20 a year for
Consider the given returns: What is the average return in each market from the point of view of a U.S. investor and of a U.K. investor?
inbox software was founded in 1998. its founder put up 2 million for 500000 shares of common stock. each share had a
Electronics Unlimited has the following capital structure: 60 percent stock, 10 % preferred stock, and 30% in debt. The after-tax cost of debt is 8 percent, the cost of preferred stock is 10 percent, and the cost of common stock is 12 percent.
acme is considering adding an additional driving range to its facility. the range would cost 76000 would be depreciated
The investment bankers have advised Seven Eleven that flotation costs will be 8% per share. What will be the cost of the newly issued preferred shares?
Assume you're to receive a stream of annual payments (also called an "annuity") of $193,723 every year for three years starting this year. The interest rate is 4%. What is the present value of these three payments?
A company's 6 percent coupon rate, semiannual payment, $1,000 par value bond which matures in 30 years sells at a price of $515.16. The company's federal-plus state tax rate is 40 percent. What is the firm's component cost of debt for purposes of cal..
John takes a long position in a call on a stock with a certain exercise price and selling a call option on the same stock with higher exercise price. Draw his total payoff diagram?
If the relevant discount rate is 6.1 percent, what is the present value of this liability? (Enter your answer in dollars not in millions, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.1..
[Valuation Sensitivities to Changes in Growth Rates and Discount Rates] Assume that some of the information relating to the Gamma Systems Manufacturing Corporation has changed. Using the financial statement data in Problem 5, answer the following qu..
the johnston company will pay an annual dividend of 2.05 next year. the company has increased its dividend by 3.5
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