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Suppose the call price is $14.20 and the put price is $9.30 for stock options where the exercise price is $100, the risk-free interest rate is 5 percent (continuously compounded), and the time to expiration is 1 year. Explain how you would create a synthetic stock position and identify the cost. Suppose you observe a $100 stock price, identify any arbitrage opportunities.
What problems can enter into the capital budgeting analysis if project debt is evaluated instead of the borrowing capacity created by the project?
A student takes a 30-question, true/false exam and guesses on each question. Find the probability of passing if the lowest passing grade is 15 correct out of 30. Would you consider this event likely to occur? Explain your answer.
Financial adviser working for an international mutual fund trying to get institutional investors
You forecast that future free cash flows after year 5 will grow at 2% per year, forever. Estimate the continuation value in year 5, using the perpetuity with growth formula.
Perpetuity Y also has end of year payments but they beginning at $45 and increase by $45 each year. Find the rate of interest which will make the difference in present values between these two perpetuities a maximum.
You have just received notification that you have won the $2.12 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday (assuming you're around to collect), 68 years from now.
A static budget enables a company to examine projected income over a range of sales levels. Foreign currency exchange rates refer to the relative values of the currencies of different countries.
Explain how the Wal-Mart outlets in China would use the spot market in foreign exchange. Explain how Wal-Mart might utilize the international money markets when it is establishing other Wal-Mart stores in Asia. Explain how Wal-Mart could use the inte..
What steps have countries taken to support the exchange rate of their currency against foreign currencies?
assume you borrow $20,000 and invest that along with your $10,000 in the market. What is your expected return and the standard deviation of your return?
A firm does not pay a dividend. It is expected to pay its first dividend of $0.20 per share in three years. This dividend will grow at 11 percent indefinitely. Use a 12 percent discount rate. Compute the value of this stock today which is time 0.
What is the toatl dollar call premium required to call the old issue? Is the tax deductible? What is the net after-tax cost of the call?
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