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The price of a stock is $48. You buy a call option that is $2 out of the money for a cost of $3. At the same time, you sell a put option that is $3 out of the money for $2 and buy a put option that is $10 out of the money for 50c. All options have the same expiry and assume r = 0 (erT = 1).
A) Draw the payoff diagram at expiration. Clearly label (inc. breakeven point(s))
B) What is the maximum upside (gain) and downside (loss)
what is the amount of the cash flow in each of the seven years?
Consider the following cash flows. All market interest rates are 12% right now. Year 0 1 2 3 4 Cash Flow 160 170 180 230 1 (a) What price would you pay for these cash flows? What total wealth do you expect after 2.5 years if you sell the rights to th..
Include in your response a discussion on the differences between a company’s liquidation value and its fair market value.
What is the maximum price you would pay for a common stock given that the risk free rate of return is 4%, the current dividend is $6.00, the return on the average stock in the market is 11%, the growth rate in dividends for the stock is 4% per year, ..
Suppose that in the next period security Ri has earned only 5% over the preceding period. How would you explain this ex post return?
Researchers associated with South Miami Hospital (SMH) developed a new experimental laser treatment for heart patients. Its development team and the physicians who use the laser consider it to be a lifesaving advance. Is it ethical for the patient to..
Find all non-negative rates of return for this project. Compute the modified rate of return (the solution to FW(i;k) = 0) for external rates k = 10% and 50%.
What is the interest rate on the bond? What is the interest rate on the bond?
JJ Industries will pay a regular dividend of $0.75 per share for each of the next four years. At the end of four years, the company will also pay out a liquidating dividend. If the discount rate is 12 percent, and the current share price is $75, what..
You have just won a two-part lottery. what is the present value of your winnings?
Upstate University currently has a 6,000 ?-car parking capacity for? faculty, staff, and students. This? year, the university issued 4,258 parking passes. The number of parking passes issued has been growing at a rate of 6?% per year. How long will i..
Dinklage Corp. has 4 million shares of common stock outstanding. The current share price is $76, and the book value per share is $5. The company also has two bond issues outstanding. What are the company's capital structure weights on a book value ba..
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