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Suppose that the result of a major lawsuit affecting a company is due to be announced in the next few seconds. The company’s stock price is currently $500 per share. If the ruling is favorable to the company, the stock price per share is expected to jump to $650. If it is unfavorable, the stock is expected to drop to $300 per share. a. What is probability of a favorable ruling implied by the stock price and the two possible outcomes after the announcement? b. Assuming that the volatility of the company’s stock after the ruling will be 20% for six months if the ruling is favorable and 40% if it is unfavorable, calculate the prices of six-month European call options with strike prices of $500, and $600. Finally calculate the implied volatilities corresponding to these two option prices. Assume that the company does not pay dividends and that the six-month risk-free rate is 5% on a continuously compounded basis.
Your company is facing earnings pressure and is considering acquiring a new computer system that will initially cost $1 million and will save $300,000 per year in inventory and receivables management costs. The system is will last for five years.
The U.S. government offers to sell you a bond for $362.45. No payments will be made until the bond matures 15 years from now, at which time it will be redeemed for $1,000. What annual interest rate would you earn if you bought this bond for $362.45?
Given that you have 1,000 workers, what is the best allocation of workers between the two plants?
Consider the following information for a mutual fund, the market index, and the risk-free rate. You also know that the return correlation between the fund and the market is .95. Calculate Jensen’s alpha for the fund, as well as its information ratio.
Based on the corporate valuation model, Dabney Inc.'s value of operations is $425 million. Its balance sheet shows $175 million of short-term investments that are unrelated to operations, $100 million of accounts payable, $125 million of notes payabl..
Assuming the market is in equilibrium, what does the market believe will be the stock's price at the end of 3 years.
Barnes Enterprises has bonds on the market making annual payments, with 18 years to maturity, a par value of $1,000, and a price of $960. At this price, the bonds yield 8.7 percent. What must the coupon rate be on the bonds?
what monthly payment will the Taylors be required to make?
A stock has a beta of .95, the expected return on the market is 21 percent, and the risk-free rate is 4.00 percent. What must the expected return on this stock be?
Explain why the present value of a cash flow stream, and the asset associated therewith; fluctuate in value with the level of interest rates in the capital markets.
What is the days sales outstanding? What is the average amount of receivables?
Knob, Inc., is a nationwide distributor of furniture hardware. The company now uses a central billing system for credit sales of $241.20 million annually. First National, Knob's principal bank, offers to establish a new concentration banking s..
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