Investment under consideration has payback of six years

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Reference no: EM132007526

1. An investment under consideration has a payback of six years and a cost of $872,000. Assume the cash flows are conventional.

If the required return is 12 percent, what is the worst-case NPV?

2. Assume a 2% effective 6-month interest rate, and premiums of $93.809 for the 1,000-strike 6-month call and $74.201 for the 1000-strike 6-month put on the S&R index. Suppose that you short the S&R index for $1,000 and sell a 1,000-strike put.

Payoff and Profit of this position?

(Include a profit table)

Reference no: EM132007526

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