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Patriot Corp. compensates executives with 10-year European call options which is granted at-the-money. If there is a signi?cant drop in the share price, the company’s board will reset the strike price of the options to equal the new share price. Then, the maturity of the repriced option will equal the remaining maturity of the original option. Suppose σ = 30%, r = 6%, δ = 0, and the original share price is $100. Calculate the following:
a. the value at grant of an option that will not be repriced
b. the value at grant of an option that is repriced when the share price reaches $60
c. the repricing trigger that maximizes the initial value of the option
You buy a zero coupon bond at the beginning of the year that has a face value of $1,000, a YTM of 12 percent, and 16 years to maturity. You hold the bond for the entire year. How much interest income will you have to declare on your tax return? What ..
Bank A pays 4% interest compounded annually on deposits, while Bank B pays 3% compounded daily. Could your choice of banks be influenced by the fact that you might want to withdraw your funds during the year as opposed to at the end of the year? Assu..
Calculate the return and risk of a two asset portfolio. Asset 1 has an annualized expected real return of 5.5% and a weight of 35% in the portfolio. Asset 2 has an annualized expected real rate of return of 2.0% and a weight of 40% in the portfolio.
Which security provides the lowest bid-ask spread. What is not one of the factors that affect nominal spreads?
Scout's Manufacturing Co. is introducing a new product. The company expects to sell 2,340 units, give or take 10%. The expected variable cost per unit is $8.77 and the expected fixed costs are $12,285. The company bases its sensitivity analysis on th..
A buyer has just purchased a home for $250,000. The buyer made a 20% down-payment and secured a note for the remainder at an interest rate of 7 percent for 25 years. Calculate the principal balance at the end of the first month by calculating the int..
Bob bought some land costing $16,190. Today, that same land is valued at $46,417. How long has Bob owned this land if the price of land has been increasing at 4 percent per year?
Master Tech is a new software company that develps and markets productivity software for municipal government applications. In developing their income statement, the following fomulas are used: Gross profit = Net sales - Cost of sales Net operating p..
Refer to the search you performed in the Learning Activities on the U.S. Securities and Exchange Commission's (SEC) website. This search should have produced a variety of financial documents for the publically traded companies you searched. Identify ..
Robert White will receive from his investment cash flows of $4,450, $4,775, and $5,125. If he can earn 7 percent on any investment that he makes, what is the future value of his investment cash flows at the end of three years?
Project K costs $50,000, its expected cash inflows are $14,000 per year for 9 years, and its WACC is 12%. What is the project's payback? Project K costs $40,000, its expected cash inflows are $9,000 per year for 8 years, and its WACC is 11%. What is..
Differences between process explanations and instructions. Describe the differences between the two types of documents.
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