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1. You are buying a put option of GM at a strike price of $75 and maturity of 1 month. The current trading price is $75. The price of the option is $2. What would the major motive to buy the put option? What is the maximum loss for the investment? What is the maximum gain?
2. What’s the benefit of buying on margin? If the initial margin is 50%, maintenance margin is 40%, when will you receive a margin call for the stock you bought at $50/share at margin?
3. Assume that you have invested $100 in a fund one year ago, the annual return is 6% over the year. How much does the investment worth now? How much will it be next year if the return remains the same?
Compare the average value of the standard deviations of the returns on the securities included in each portfolio with the standard deviation of portfolio's returns.
How much Tier 1 and Tiear 2 capital is required? How does this compare with the capital required under the Basel II standardized approach and under Basel I?
You used Dell as a representative company to estimate the cost of capital for GCI. What are some of the potential problems with this approach in this situation? What improvements might you suggest?
Your uncle has $1,025,000 and wants to retire. He expects to live for another 25 years, and he also expects to earn 7.5% on his invested funds. How much could he withdraw at the beginning of each of the next 25 years and end up with zero in the accou..
1. eleanor needs 40000 a year to live on in retirement net of the income she will receive. she will be retiring in 22
problem 1pre-contribution balance sheets and fair valuesjune 30 20x9in thousands of
You have a 2-stock portfolio with a total value of $510,000. $195,000 is invested in Stock A and the remainder is invested in Stock B. If standard deviation of Stock A is 19.90%, Stock B is 9.35%, and correlation between Stock A and Stock B is –0.60,..
Suppose you just bought a 20-year annuity of $7,500 per year at the current interest rate of 10 percent per year. What is the value of your annuity today? What happens to the value of your investment if interest rates suddenly drop to 5 percent? What..
Compute the payback statistic for Project B and decide whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 12 percent and the maximum allowable payback is three years.
A firm has a project that costs $600 today and pays off next period $900 with probability .5 and $360 with probability .5. Assume that all investors are risk-neutral, the risk-free interest rate is 0, and there are no direct bankruptcy costs.
The Clayton Manufacturing Company is considering an investment in a new automated inventory system for its warehouse that will provide cash savings to the firm over the next five years. The firm’s CFO anticipates additional earnings before interest, ..
The lender deducts this interest amount from the loan up front and gives you $17,500. In this case, we say that the discount is $2,500. What is the effective interest rate?
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