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You are given the following short-term interest rates in a Black-Derman-Toy binomial tree: r0 = 0.04, rd = 0.02, ru = 0.12, rdd = 0.047, rdu = 0.072. A year-3 caplet has a strike rate of 0.07. The caplet has a notional amount of $100. What is the current value of this caplet?
Minnesota Metal Forming Company has just invested $500,000 of fixed capital in a manufacturing process, which is estimated to generate an after-tax annual cash flow of $200,000 in each of the next 5 years. At the end of year 5, no further market for ..
You are considering undertaking a land improvement practice that will cost you $120 per acre to establish and an additional $8 per acre to maintain over the next 10 years. Assuming a real discount rate of 4%, what is the present value of the total co..
On January 1, 2015, ABC Corporation acquired equipment for $260,000. The estimated life of the equipment is 5 years or 40,000 hours. The estimated salvage value is $20,000. What is the balance in Accumulated Depreciation on December 31, 2016 after tw..
(Yield to maturity) The Saleemi Corporation's ?$1,000 bonds pay 9 percent interest annually and have 13 years until maturity. You can purchase the bond for $ 895. a. What is the yield to maturity on this bond? b. Should you purchase the bond if the y..
Ronnie's Custom Cars purchased some fixed assets two years ago for $90,000. The assets are classified as 5-year property for MACRS. Ronnie is considering selling these assets now so he can buy some newer fixed assets which utilize the latest in techn..
Assume that the risk-free rate is 7% and the expected return on the market is 12%. What is the required rate of return on a stock with a beta of 2.4?
If the required return on Argaiv preferred stock is 6 percent, and if Argaiv pays its next dividend in one year, what is the market price of the preferred stock today?
Wal-Mart’s equity beta is 1.2, its debt-to-equity ratio is 0.4, and it borrows at the risk-free rate of 6%. The corporate tax rate is 34%. The expected return on the market portfolio is 12%. What discount rate should Walmart use to determine the valu..
You estimate the following probability distributions of returns for the stock of the Beranek Company: What is the standard deviation, in percentages, of the stock?
In the current year, Company Y earns cash-basis revenues of $1,000,000. Their expenses (excluding depreciation) were $800,000, and the depreciation expense was $100,000. The applicable tax rate is 40%. Calculate Company Y’s operating cash flow for th..
A trader writes five naked put option contracts, with each contract being on 100 shares. The option price is $10, the time to maturity is six months, and the strike price is $64. a) What is the margin requirement if the stock price is $58? b) How wou..
There are numerous methods by which to evaluate the financial efficacy of a project. Based on the following methods: 1) NPV, 2) IRR, 3) Discounted Payback and 4) PI – discuss the pros and cons inherent in each method. Finally, which method is superio..
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