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Question - A stock is trading at $200 with a volatility of 30% per year. Now assume that the volatility next year could be 40% or 20% each with a 50% probability. Assume that the stock and the volatility are independent processes (this is usually not the case). Find the price of the 2-year European call with strike price of $200 using a 2-step tree for the stock. The interest rate is constant at 9%. This extends the CRR model to include stochastic volatility. (Hint: use ideas similar to how we extended CRR to include stochastic rates).
Van Dyke Corporation has a corporate tax rate equal to 36%. The company recently purchased preferred stock in another company. The preferred stock has an 8% before-tax yield. What is Van Dyke's after-tax yield on the preferred stock?
Gipson Company produces and sells a single product whose selling price is $80.00 per unit and whose variable expense is $50.00 per unit.
The stock currently sells for Rs 20. What is the required rate of return?
capital co. has a capital structure based on current market values that consists of 45 percent debt 17 percent
Consider a firm with two equally sized divisions (in terms of their value) that engage in completely different lines of business with different risks.
"TumblingTumbleweeds" to Williamson Music, Inc. Was it necessary for Sam Fox to obtain Nolan's consent before making the assignment to Williamson? Explain.
Companies utilize market segmentation to meet the needs of various consumer preferences.
Now-Cash charged him $50 to advance his tax refund. So, he received $950 immediately and signed an agreement to have his tax refund deposited into the Now-Cash's bank account. Assuming a 360-day year, what is the effective annual rate of interest ..
Create a graph that shows how the payments are divided between interest and principal repayment over time
The closing price of the stock is $45.75 per share, and there are 200,000 shares outstanding. It has paid common dividends of $250,000.
The Frisco Company just paid $2.20 as its annual dividend. The dividends have been increasing at a rate of 4% annually and this trend is expected to continue.
Your bank offers to lend you $100,000 at an 8.5% annual interest to start your new business. The terms require you to amortize the loan with 10 equal end-of-year payments. How much interest would you be paying in Year 2? Explain.
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