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Consider a stock priced at 100 with a volatility of 25 percent. The continuously compounded riskfree rate is 5 percent. Answer the following questions about various options, all of which have an original maturity of one year.
a. Find the premium on an at-the-money paylater call option. Then determine the market value of the option nine months later if the stock is at 110.
b. Find the value of F and K on a break forward contract. Then determine the market value of the break forward nine months later if the stock is at 110.
c. Find the premium on an at-the-money contingent-pay call option. Then determine the market value of the option nine months later if the stock is at 110.
Juggernaut Satellite Corporation earned $18 million for the fiscal year ending yesterday. The firm also paid out 30 percent of its earnings as dividends yesterday. The firm will continue to pay out 30 percent of its earnings as annual, end-of-year di..
Epley Industries stock has a beta of 1.25. The company just paid a dividend of $.40, and the dividends are expected to grow at 5 percent. The expected return on the market is 12 percent, and Treasury bills are yielding 6.4 percent. The most recent st..
Find the convexity of a seven-year maturity, 6.6% coupon bond selling at a yield to maturity of 8.4%. The bond pays its coupons annually. (Do not round intermediate calculations. Round your answer to 4 decimal places.) Convexity
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If the yield curve is downward sloping, which of the following statements is correct? (hint: graph the yield curves for a T- bond, a AAA bond, and a B bond)
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A bond is likely to be called if its coupon rate is below its YTM. A bond is likely to be called if its market price is below its par value. A bond is likely to be called if its market price is equal to its par value. A bond is likely to be called if..
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Suppose that Dunn Industries has annual sales of $4.05 million, cost of goods sold of $1,560,000, average inventories of $1,026,000, and average accounts receivable of $660,000. Assume that all of Dunn’s sales are on credit. What will be the firm’s o..
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