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The price of a stock is $40. The price of a one-year European put option on the stock with a strike price of $30 is quoted as $7 and the price of a one-year European call option on the stock with a strike price of $50 is quoted as $5. Suppose that an investor buys 100 shares, shorts 100 call options, and buys 100 put options. Draw a diagram illustrating how the investor’s profit or loss varies with the stock price over the next year. How does your answer change if the investor buys 100 shares, shorts 200 call options, and buys 200 put options?
Please explain your answer.
You just purchased a 12-year, $1,000 face value, zero coupon bond with a yield to maturity of 10%. If your tax rate is 30%, how much in taxes will you have to pay at the end of the first year of holding the bond? What did you pay for it? X yield rate..
You are buying a put option of GM at a strike price of $75 and maturity of 1 month. The current trading price is $75. The price of the option is $2. What would the major motive to buy the put option? What is the maximum loss for the investment? What ..
A firm has 20 year $5 million of debt which was acquired 2 years ago and is currently selling at 115% of par value. The debt has a coupon rate of 7% and the current tax rate is 35%. What is the before tax cost of debt?
Explain rate parity theory and how it is used to predict future exchange rates and calculate the current Forward Exchange Rate for the United Statesand Egypt.
In most cases accountants and finance directors do not work in isolation from other parts of the company. Discuss to what extent an understanding of the literature on management therioes might enhance their performance.
The original cost of a dozer is $140,000.00. The estimated useful life is assumed to be 6 years. the salvage rate is $180,000.00. Find the book value at the end of year 3; straight line method? declining balance method?
A young stockbroker was rather overwhelmed by a flood of new clients. Assunta, one of his clients, had purchased XYZ Corp. stock through the broker at a price of $35 per share. The price had gone down to $29 by the time Assunta telephoned the broker...
calculate the NPV of each Well and recommend whether or not the company should undertake the investment and what is the value of the growth opportunities that the new line offers?
A 10-year maturity convertible bond with a face value of $1,000 and a 6% coupon on a company with a bond rating of Aaa is selling for $1,050. The bond pays interest annually. Each bond can be exchanged for 20 shares, and the stock price currently is ..
The Gentry Garden Center sells 90,000 bags of lawn fertilizer annually. The optimal safety stock (which is on hand initially) is 1,000 bags. Each bag costs the firm $1.50, inventory carrying costs are 20%, and the cost of placing an order with its su..
A five-year project has an initial fixed asset investment of $360,000, an initial NWC investment of $40,000, and an annual OCF of −$39,000. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required re..
The Chester Company has just purchased $40,900,000 of plant and equipment that has an estimated useful life of 15 years. The expected salvage value at the end of 15 years is $4,090,000. What will the book value of this purchase (exclude all other pla..
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