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Various management actions provide investors with clues as to the future prospects for the firm. Which of the following actions by management contains the most positive economic information for common stock investors?
a) A 20 percent one-shot extra cash dividend.
b) A 20 percent stock dividend.
c) A two for one stock split.
d) A 20 percent increase in cash dividends per share.
The risk-free rate of return is 5 percent and the market risk premium is 9 percent. What is the expected rate of return on a stock with a beta of 1.28?
Currently, a stock price is $80. It is known that at the end of 4 months it will be either $73 or $90. The risk-free rate is 6% per annum with continuous compounding. What is the value of a 4-month European put option with a strike price of $80?
A pension plan is obligated to make disbursements of $1 million, $2 million, $5 million and $1 million at the end of each of the next four years, respectively. Find the duration of the plan’s obligations if interest rates are flat at 10% annually
Romo Enterprises needs someone to supply it with 121,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost you $880,000 to install the equipment nec..
Currently the risk-free rate is 6% and the expected return on the market portfolio is 11%, the expected return for 3 stocks as priced in the market are listed below with their estimate of beta.
Which exotic option’s payoff is based on the average price over some period of time?
You were offered the opportunity to purchase either a simple interest note or a simple discount note with the following terms: $33,353 at 7% for 18 months. Based on the effective interest rate, which would you choose?
XYZ company has no debt and the cost of equity is 15%. The current value of the firm is $1,000,000 and XYZ can borrow 10%. Assume XYZ pays no tax. Compute the firm value if XYZ borrows $200,000 and uses the proceeds to repurchase shares. Calculate fi..
According to the FCIC report, New Century Financial used the Federal Reserve discount window to raise the capital it needed to finance the origination of mortgages.
The current price of a non-dividend-paying stock is $41. Over the next year it is expected to rise to $52 or fall to $31. Assume the risk free rate is zero. An investor buys a put option with a strike price of $41. How would the investor hedge th..
Which of the following financial ratios/percentages would be the most likely reason for a bank to NOT approve a company’s application for a line of credit to fill temporary cash shortfalls?
Why does the balance sheet report historical cost information instead of market values for assets? Please explain
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