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Suppose you enter into along 6-month forward position at a forward price of $60. What is the payoff in 6 months for prices of $50, $55, $60, $65, and $70? The payoff to a long forward at expiration is equal to: Payoff to long forward = Spot price at expiration−Forward price Therefore, the payoff in 6 months shown in the following table: Price of position in 6 months Payoff of the forward $50 - $10 55 - 5 60 0 65 5 $70 $10 2. Suppose that instead you buy a 6-month call option with a strike price of $60. What is the payoff in 6 months at the same prices for the underlying asset? Payoff = Price of underlying asset in 6-month - Strike price of 6-month call option = $60 - $60 = $0 or zero 3. Comparing the payoffs of parts (a) and (b), which contract should be more expensive (i.e., the long call or long forward)? Why is this so?
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 13 percent, and that the maximum allowable payback and discounted payback statistic for the pr..
You need to create a portfolio with a duration of 4 years. You can use a 3 year zero-coupon bond and a perpetuity which pays $80 each and every year forever and has yield of 8%. How much of the portfolio value in percentage you would have to invest i..
Cosmo company purchases goods for resale for galaxy, inc. the amount of the purchase is $12,500 with terms 3/10, n/30. cosmo later returns $500 worth of the goods. under the perpetual inventory method, what is the journal entry to record the return?
Annuity Due. Your landscaping company can least a truck for $8,000 a year (paid at year-end) for 6 years. It can instead buy the truck for $40,000. The truck will be valueless after 6 years. The interest reate your company can earn on its funds is 7%..
Amazing Co. bonds have 10 years remaining until maturity. They pay a 10.8% semi annual coupon and have a face value of $1000. The current nominal YTM on Amazing Co.'s bonds is 10.14%. However, Amazing Co. may call the bonds in 5 years at a call price..
Which of the following is the appropriate way to calculate the price of a share of a given company using the free cash flow valuation model?
Complete the first three lines of an amortization schedule for the following loan: You borrow $ 7000 with an annual interest rate of 13% over 7 years
Company a charges $40.00 per day company b charges $60.00 plus $20.00 per day for what number of days is the cost the same?
United Insurance Company insures Travelco for fire insurance. United reinsures 40% of this exposure with Promises Reinsurance company on a pro-rata basis. If a $400,000 insured loss occurs at Travelco, Promises Reinsurance will pay United:
The efficient set of portfolios
The following diagram shows the value of a put option at expiration. Ignoring the transaction cost and answers the following questions. What is the expiration value of the short position if the stock price is $76?
Revenues generated by a new fad product are forecast as follows: Expenses are expected to be 50% of revenues, and working capital required in each year is expected to be 10% of revenues the following year. The product requires an immediate investment..
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