Using option equivalents from common stock and borrowing

Assignment Help Financial Management
Reference no: EM13879401

Your group has been assigned task of determining what value to place on call option for your firm. The current stock price per share is $54.52. Six months from now management believes the stock price will either fall by 25% or rise by 33%. Using this information, determine what a 6 month call should be valued at if the risk free rate of return is at 2% annually. Banks will loan you at .5% over the risk-free rate. Using option equivalents from common stock and borrowing, determine the price of the call option to submit to management.

Reference no: EM13879401

Questions Cloud

How much additional equity financing is required : Urban's which is currently operating at full capacity, has sales of $47,000, current assets of $5,100, current liabilities of $6,200, net fixed assets of $51,500, and a 5 percent profit margin. The firm has no long-term debt and does not plan on acqu..
Preferred stock valuation : Several years ago, Rolen Riders issued preferred stock with a stated annual dividend of 9% of its $100 par value. Preferred stock of this type currently yields 10%. Assume dividends are paid annually. What is the value of Rolen's preferred stock?
Bonds issued-what is the yield to maturity : The 7 percent bonds issued by Modern Kitchens pay semiannually, mature in eight years, and have a $1,000 fac value. Currently, the bonds sell for $1,032. What is the yield to maturity?
Supplier-customer relationship : The category of business combination where the firms have a supplier-customer relationship is known as a ___.
Using option equivalents from common stock and borrowing : Your group has been assigned task of determining what value to place on call option for your firm. The current stock price per share is $54.52. Six months from now management believes the stock price will either fall by 25% or rise by 33%. Using opti..
Risky should have to earn internal rates of return : To be accepted, projects that are unusually risky should have to earn Internal Rates of Return that are ____ those earned by a firm’s typical projects.
What are the tax impacts : Jurden WIndows Inc. hired JUstin, a new sales VP, two years ago. Justin is 51. In the words of the company CEO, Justin has "taken the company to the moon."  The CEO would like to adopt a special retirement plan just for Justin. Ideally, it would be a..
Expert in finance assess logic of his investment strategy : A University Professor observed that the news program “60 Minutes” had done over 30 adverse news stories on NYSE listed companies in the past five years. How would you as an expert in finance assess the logic of his investment strategy?
What is the real rate of return on this bond : A bond that pays interest annually yields a rate of return of 7.00 percent. The inflation rate for the same period is 4 percent. What is the real rate of return on this bond?

Reviews

Write a Review

Financial Management Questions & Answers

  What is return on equity

Keller Cosmetics maintains an operating profit margin of 4.0% and asset turnover ratio of 2.0. The ROA is 8%. If its debt-equity ratio is 1, its interest payments and taxes are each $7,000, and EBIT is $22,000, what is its Return on Equity (ROE)?

  The constant-growth dividend discount model

The constant-growth dividend discount model (DDM) can be used only when the ___________.

  Win first prize in competition

A student plans to win first prize in a competition that began Jan 2 and ends March 2. He will invest his $10,000 winnings in a friend’s 5-year-old startup company and expects to gain 10% interest per year, compounded annually, based on contracts the..

  Analyse different patterns of cost behaviour

Evaluate the performance of a company using various financial analytical tools and analyse different patterns of cost behaviour and apply cost-volume-profit analysis to business decisions.

  Monthly overhead costs using the high-low method

Compute the fixed and variable components of the monthly overhead costs using the high-low method. Using the equation developed in (a) above. Project the overhead costs for the month of august if the direct costs for the month of august if direct lab..

  What is the yield to maturity of the bond

A bond sells for $921.10 and has a coupon rate of 7.40 percent. If the bond has 19 years until maturity, what is the yield to maturity of the bond?

  Addition to price-weighted and value-weighted indexes

In addition to price-weighted and value-weighted indexes, an equally weighted index is one in which the index value is computed from the average rate of return of the stocks comprising the index.

  Current value of stock on basis of dividend discount model

Currently Omega Corporation’s shares are selling at $60 per share and company is paying $5 per share dividend. Dividends are expected to grow at an annual rate of 3% for foreseeable future. Required rate of return for investors is 12%. Calculate the ..

  The two stocks must have different betas

he stock price of Company X doubled over the past year, the stock price of Company Z decreased by over 50%. Company X is the better stock investment today. The stock price of Company X doubled over the past year, the stock price of Company Z decrease..

  Land for to break even with your opportunity cost rate

You pay 1000 per acre for a tract of land and your opportunity cost is 7 percent. You hold the land 8 years and pay 100 in taxes each year. What price per acre must you sell the land for to break even with your opportunity cost rate?

  Difference between a stock dividend and a stock split

What is the difference between a stock dividend and a stock split? As a stockholder, would you prefer to see your company declare a 100% stock dividend or a 2 – for – 1 split? Assume that either action is feasible.

  Comprehensive problems-compute incremental return on sales

Proposal #1 would extend trade credit to some customers that previously have been denied credit because they were considered poor risks. Compute the incremental Return on Sales if these new credit customers are accepted: Would establish local collect..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd