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1. Using a 3-step binomial tree, find the value of an American 4000-Put with 12 months to maturity for a stock index with a current level of 3800 with 18% volatility and a 1% dividend payout rate (per year) when the risk free rate is 3% per year. Make an excel spreadsheet.
2. Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 9 percent, and that the maximum allowable payback and discounted payback statistics for the project are 2.0 and 3.0 years, respectively. Time: 0 1 2 3 4 5 6 Cash flow –$7,600 $1,190 $2,390 $1,590 $1,590 $1,390 $1,190 Use the NPV decision rule to evaluate this project.
You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 10 percent, –10 percent, 17 percent, 22 percent, and 10 percent. Suppose the average inflation rate over this period was 1.5 percent and the average T-bi..
What is the most expensive publicly traded stock in the United States? Go to finance.yahoo.com and enter BRKA (Berkshire Hathaway Class A). What is the current price per share? What is the 52 week high and low? How many share trade on an average day?..
Quixote Industries currently has $6 million in debt and $10 million in equity. Assume the firm uses some of its cash to decrease its debt while maintaining its current equity and net income. Which one of the following will decrease as a result of thi..
If you invest $500 today and can earn a 9.00% nominal rate of return with semiannual compounding, what will be your effective annual rate of return? If you save $330 a month for retirement and you can earn a nominal 8.60% rate of return with monthly ..
Which of the following presents the correct relationship? As the coupon rate of a bond increases, the bond's:
ALUM, Inc. uses high-tech equipment to produce specialized aluminum products for its customers. Each one of these machines costs $1,520,000 to purchase plus an additional $48,000 a year to operate. The machines have a five-year life after which they ..
Consider three bonds with 6.4% coupon rates, all making annual coupon payments and all selling at a face value of $1,000. The short-term bond has a maturity of 4 years, the intermediate-term bond has maturity 8 years, and the long-term bond has matur..
The lower risk nature of long-term debt in a? firm's capital structure is due to the fact that?
What was the dividend yield and the capital gains yield?
One of the most important elements in capital budgeting is to accurately project what future cash flows will be
You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a common practice with expensive, high-tech equipment). The scanner costs $8,050,000, and it would be depreciated straight-line to zero over fiv..
Thompson Manufacturing is considering two investment proposals. The first involves a quality improvement project, and the second is about an advertising campaign. Suppose the hurdle rate of the firm is 10%. Calculate the cash flows of the “incrementa..
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