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Which of the following statements is false?
The value of an otherwise identical call option is higher if the strike price the holder must pay to buy the stock is higher.
Because a put is the right to sell the stock, puts with a lower strike price are less valuable.
For a given strike price, the value of a call option is higher if the current price of the stock is higher, as there is a greater likelihood the option will end up in-the-money.
Put-call parity gives the price of a European call option in terms of the price of a European put, the underlying stock, and a zero-coupon bond.
Your company has spent $230,000 on research to develop a new computer game. The firm is planning to spend $43,000 on a machine to produce the new game. The firm has a tax rate of 35 percent, an opportunity cost of capital of 12 percent, and it expect..
To purchase a new car, you borrow $30,000 for 8 years at an interest rate of 12% APR compounded monthly, and you make monthly car payments. How much interest do you pay on the 9th payment? (Hint: First step start with computing the balance of the loa..
Lasik Vision Inc. recently analyzed the project whose cash flows are shown below. However, before Lasik decided to accept or reject the project, the Federal Reserve took actions that changed interest rates and therefore the firm's WACC.
You own a stock portfolio invested 35 percent in Stock Q, 25 percent in Stock R, 25 percent in Stock S, and 15 percent in Stock T. The betas for these four stocks are 0.83, 1.21, 1.22, and 1.39, respectively. What is the portfolio beta?
The size of the market will help determine which of the following factors:
The market value of the equity of Thompson, Inc., is $593,000. The balance sheet shows $32,000 in cash and $203,000 in debt, while the income statement has EBIT of $104,000 and a total of $148,000 in depreciation and amortization. What is the enterpr..
You need to choose between the following types of issues: A public issue of $10 million face value of 10-year debt. The interest rate on the debt would be 10.5%, and the debt would be issued at face value. The underwriting spread would be 1.9%, and o..
The Altoona Company issued a 25-year bond 5 years ago with a face value of $1,000. The bond pays interest semiannually at a 9.2% annual rate. What is the bond's price today if the interest rate on comparable new issues is 12%? What is the price today..
Assume that the FTSE100 stock index level is 5000, and there is a futures contract on the index maturing one year from today. Index stocks will pay dividends over the life of the contract, and these dividends can be reinvested whenever they are recei..
An investment has a required return of 13 percent. The cash flows, in order, are -$42,000 (initial cost), $16,500 (year 1 CF), $28,400 (year 2 CF) and $7,500 (year 3 CF). Based on IRR, should this project be accepted?
We examined two very important topics in finance this week; Capital Budgeting and Dividend Policy.
Future value: annuity versus annuity due. What's the future value of a 11%, 5-year ordinary annuity that pays $700 each year? If this was an annuity due, what would its future value be?
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