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a. What is meant by the delta of a stock option?
b. You are holding call options on a stock. The stock’s beta is 0.75, and you are concerned that the stock market is about to fall. The stock is currently selling for $5 and you hold 1 million options on the stock (i.e you hold 10,000 contracts for 100 shares each). The option delta is 0.8. How much of the market index portfolio must you buy or sell to hedge your market exposure?
Suppose you make 30 annual investments in a fund that pays 4% compounded annually. If your first deposit is $9,000 and each successive deposit is 4% greater than the preceding deposit, how much will be in the fund immediately after the 30th deposit?
Solar Inc. pays a current dividend of $2.50 per share annually. This dividend is expected to grow at the rate of 3.25% per year for the foreseeable future. Rating LLC has given Solar Inc. a beta score of 1.05.The risk-free rate of return is currently..
Burton Corp. is growing quickly. Dividends are expected to grow at a rate of 31 percent for the next three years, with the growth rate falling off to a constant 7.6 percent thereafter. If the required return is 12 percent and the company just paid a ..
If a change in market conditions causes a currency to become overvalued, how would it adjust to equilibrium in a flexible exchange rate system? Why do some private market participants prefer a fixed exchange rate system over a flexible exchange rate ..
Carter Corporation's sales are expected to increase from $5 million in 2012 to $6 million in 2013, or by 20%. Its assets totaled $4 million at the end of 2012. Carter is at full capacity, so its assets must grow in proportion to projected sales. Unde..
Norwood Corp. currently has accounts receivable of $1,988,000 on net sales of $6,918,000. What are its accounts receivable turnover ratio and days’ sales outstanding (DSO)? (Use 365 days for calculation. Round answers to 2 decimal places, e.g. 12.25...
Suppose you put $100 into a savings account today, the account pays 8% compounded semiannually, and you withdraw $50 one year after your initial deposit. What would your ending balance be 20 years after the initial $100 deposit was made, assuming tha..
You are in a situation that you suspect there is an arbitrage opportunity with options you are studying. describe the arbitrage opportunity confronting you.
Dome Metals has credit sales of $396,000 yearly with credit terms of net 45 days, which is also the average collection period. Dome does not offer a discount for early payment, so its customers take the full 45 days to pay. What is the average receiv..
Stu can purchase a one-bedroom house near his college today for $110,000, including the cost of some minor repairs. He expects to be able to resell it in four years for $150,000 if he just puts a little effort into cleaning up the property. At a disc..
If a firm decreases its operating costs, all else constant, then: the profit margin increases while the equity multiplier decreases. the return on assets increases while the return on equity decreases. the total asset turnover rate decreases while th..
Green then returns the signed contract to Penny at Wholesale Foods. Is this additional provision a part of the contract between the parties?
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