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Consider a four-month European put option on a non-dividend-paying stock when price is $55, the strike price is $60, and the risk-free interest rate is 12% per annume?
a) What is the lower bound for the price of this European put option
b) you check the market and see that the put option is trading at $1.5. IS there an arbitrage opportunity?
If yes, state the action you need to take today to exploit this arbitrage opportunity.
You are involved in the planning process for a firm that is expected to have a large increase in sales for the next year. Which type of firm would benefit the most from that sales increase: a firm with low fixed costs and high variable costs or a ..
Four years ago, your firm issued $1,000 par, 25-year bonds, with a 7 percent coupon rate and a 10 percent call premium. If these bonds are now called, what is the approximate yield to call for the investors who originally purchased them? If these bon..
Suppose the real risk-free rate is 2.50% and the future rate of inflation is expected to be constant at 4.10%. What rate of return would you expect on a 5-year Treasury security, assuming the pure expectations theory is valid? Disregard cross-product..
The following are three one-year “discount” loans that a bank might offer to the customer. Determine the amount of interest the bank would make on each loan and indicate the amount of net proceeds that the bank would pay out on each loan. At what dis..
Corporate bonds issued by Johnson Corporation currently yield 10%. Municipal bonds of equal risk currently yield 6.5%. At what tax rate would an investor be indifferent between these two bonds?
You want to buy a new car, but you can make an initial payment of only $2,700 and can afford monthly payments of at most $575. How much can you afford if you finance the purchase over 48 months?
You put $2,000 in an investment account today which will earn 8% over the next 14 years, what is the future value?
Find NPV and IRR - Develop sensitivity analysis if the difference between the scenarios is 15 % - Develop stakeholder analysis (stakeholder analysis ) for this project?
On January 1st, 2000, you purchased 20 shares of ABC stock at $15 per share. You received dividends of $0.75 at the end of 2000, $1.05 at the end of 2001; and $1.20 at the end of 2002. You sold all the ABC stocks at the end of 2002 for $18.5 per shar..
Suppose you know that a company’s stock currently sells for $50 per share and the required return on the stock is 10 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it..
XYZ Inc has a capital structure that consists of 40% debt and 60% common stock. Dividends are growing at a constant rate of 5% and the current dividend is $2.00. The stock is currently selling for $21.88. The before tax cost of debt is 14% and the fi..
Describe the differences in the underwriting process for an Investment Bank between a firm commitment securities offering and a best efforts offering. Include in your discussion the risks assumed by the Investment Company and those assumed by the Cli..
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