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A company is currently awaiting the outcome of a major lawsuit. This is expected to be known within one month. The stock price is currently $20. If the outcome is positive, the stock price is expected to be $25 at the end of one month. If the outcome is negative, it is expected to be $16 at that time. The one-month riskfree interest rate is 8% per annum.
a. What is the risk-neutral probability of a positive outcome?
b. What are the values of one-month call options with strike prices of $18, $20, $22, and $24?
Company XYZ enters into firm commitment underwriting agreement with Company ABC to issue 4200 of bonds with a 1,000 face value. Company ABC agrees to buy the bonds for $620 each and sells 84% of the issue in the market for $831 per bond. What are the..
How much money do you expect to have at the end of your investment horizon if you invest in the mutual fund?
Note the following information on two mutually exclusive projects under consideration by Monroe Food Markets, Inc. Project A-Cash flows Year 0 $-30,000 1 $10,000 2 $10,000 3 $10,000 4 $10,000 5 $10,000 Project B-Cash flows Year 0 $-60,000 1 $20,000 2..
An investment banker in Spain notices that 1 year interest rates in Spain and Mexico are 12%-8% respectively. What should forward premium be for IRP to hold?
Suppose an investment offers to double your money in 18 months (don’t believe it). What rate of return per quarter are you being offered?
Maintenance costs for a regenerative thermal oxidizer have haven increasingly uniformly for 5 years. The cost in year 1 was $8,000 and it increased by $900 per year through year 5. Compute the present worth of the costs using an interest rate of 10% ..
Maggie's Muffins, Inc., generated $4,000,000 in sales during 2013, and its year-end total assets were $3,000,000. Also, at year-end 2013, current liabilities were $1,000,000, consisting of $300,000 of notes payable, $500,000 of accounts payable, and ..
Benji's has an opportunity with an initial cash flow of $48,900 and future cash flows of -$31,300 in Year 1 and -$21,600 in Year 2. The discount rate is 7 percent. Should this project be accepted or rejected? Why? because the IRR of 5.28 percent is l..
It uses a centralized approach and makes most of decisions for its many subsidiaries. Bridgeston is also large public company that operates throughout world?
The ratio of the inversion layer, x1, to the very-strong inversion layer, xth, was quoted as ?2/(?2-1)-1.414=0.414 while discussing the space-charge distribution shown in Figure. Show how this ratio can be obtained from the depletion approximation..
Dave & Co. is replacing a machine because it has worn out. At the end of its 5 year life, the new machine will not affect either sales or operating costs and will not have a salvage value. The new machine will have a zero rate of return. The new mach..
Under/Over Valued Stock A manager believes his firm will earn a 17.0 percent return next year. His firm has a beta of 1.60, the expected return on the market is 15.0 percent, and the risk-free rate is 5.0 percent. Compute the return the firm should e..
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