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a. Assume that the FTSE100 stock index level is 5000, and there is a futures contract on the index maturing one year from today. Index stocks will pay dividends over the life of the contract, and these dividends can be reinvested whenever they are received to provide a total cash flow equivalent to 200 index points at futures maturity. Assume also that you can costlessly short sell the index basket of stocks and you can borrow and lend any amount of money at an annual rate of 5%. Assume also that you can ignore marking to market cash flows. What is the price of this futures contract maturing in an year?
Suppose that the futures contract is trading at 5400. What trades would you make today and one year hence to arbitrage? What is your arbitrage profit?
Suppose that the futures contract is trading at 4900. What trades would you make today and one year hence to arbitrage? What is your arbitrage profit?
Ryan Borrowed $15,000 now with a 7% interest rate compounded annually. He needs to pay them back over 7 years starting from the end of the first year, what will be Ryan’s annuity assuming that he will miss the 4th payment
A stock is expected to pay a dividend of $1 per share in three months and another dividend of $1 per share in nine months. The stock price is $50 today, and the risk-free rate of interest is 5% per annum with continuous compounding for all maturities..
Should firms hedge? A number of firms practice hedging and use derivatives to manage risk and change risk exposure. Some people argue firms should stick with their core business (i.e airlines should concentrate and on operating airlines). What do you..
Calculate the rate of return on equity the proposed change in capital structure assuming that the company operates in a perfect capital market without any taxation.
Consider the CAPM. The expected return on the market is 13%. The expected return on a stock with a beta of 1.5 is 18%. What is the risk-free rate?
A firm had net income of $100,000, taxes of $25,000 interest expenses of $10,000, cash of $15,000, depreciation of $12,000, and selling and administrative expenses of $120,000. What was the firm’s revenue? What is the firm’s net profit margin?
Geronimo, Inc. is considering a project that has an initial after-tax outlay or after-tax cost of $190,000. The respective future cash inflows from its four-year project for years 1 through 4 are: $50,000, $40,000, $70,000 and $45,000. Geronimo uses ..
A couple will retire in 50 years; they plan to spend about $22,000 a year in retirement, which should last about 25 years. They believe that they can earn 8% interest on retirement savings. But now assume that the inflation rate over the next 50 year..
Which of the following bonds is trading at a premium?
Find the following values for a single cash flow:
Under which of the following discounting methods will the present value of an investment be the highest, assuming the same annual interest rate?
What annual equal payment series is necessary to repay the following increasing series of payments?
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