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5. The common stock of Company XYZ is currently trading at a price of $42. Both a put and a call option are available for XYZ stock, each having an exercise price of $40 and an expiration date in exactly six months. The current market prices for the put and call are $1.45 and $3.90, respectively. The risk free holding period return for the next six months is 4%, which corresponds to an 8% annual rate. a. For each possible stock price in the following sequence, calculate the expiration date payoffs (net of the initial purchase price) for the following positions: (1) buy one XYZ call option, and (2) short one XYZ call option: 20,25,30, 35,40,45,50,55,60 Draw a graph of these payoff relationships, using net profit on the vertical axis and potential expiration date stock price on the horizontal axis. Be sure to specify the prices at which these respective positions will break even (i.e., produce a net profit of zero). b. Using the same potential stock prices as in Part a, calculate the expiration date payoffs and profits (net of the initial purchase price) for the following positions: (1) buy one XYZ put option, and (2) short one XYZ put option. Draw a graph of these relationships, labeling the prices at which these investments will break even. c. Determine whether the $2.45 difference in the market prices between the call and put options is consistent with the put call parity relationship for European style contracts.
bauer industries is an automobile manufacturer. management is currently evaluating a proposal to build a plant that
They expect to see their dividend grow at a twenty percent rate for the next two years and then level out at a continuous six percent growth rate. City Food's required rate of return is twelve percent. What is the most you would pay for City Foods..
Determine the term Bond valuation and what would this imply about the terms of the issue
zurich company recently received the following information related to the companys december 31 2012 statement of
An investor owns $10,000 of Adobe Systems stock, $15,000 of Dow Chemical, and $25,000 of Office Depot. What are the portfolio weights of each stock?
How do a high percentage of Medicaid patients influence a hospitals prices?
Meiston Press has a debt-equity ratio of 2.10. The pre-tax cost of debt is 9.15 percent and the cost of equity is 14.4 percent. What is the firm's weighted average cost of capital (WACC) if the tax rate is 34 percent? 8.74 percent 9.89 percent 10...
research the latest two years of financial statements for a publicly-traded organization based in the u.s. obtain the
Assume you have predicted the following returns for Stock A and B in four possible states of the economy. What is the expected return of each stock? Calculate the variance and standard deviation for Stocks A and B.
Carol Thomas will pay out $6000 at the end of the year 2, 8000 at the end of year 3 and receive 10000 at the end of year 4. With an interest rate of 13%, what is the net value of the payments vs. receipts in today's dollars?
Cash Flows: A new project will generate sales of $74 million, costs of $42 million, and depreciation expense of $10 million in the coming year. The firm's tax rate is 35%. Calculate cash flow for the year by using all three methods listed below, a..
Stockbridge industries has a total assests turnover ratio 4.0x and net annual sales of 48 million. if stockbridge has 5 million of total debt on the balqance sheet, what is the firms debt ratio?
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