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The price of a stock currently is $67. You sell 10 put option contracts on the stock with a strike price of $70 when the option price is $3.95 - $4.05
At the expiration the stock price is $65.50.
1. What is your PAYOFF? Show it algebraically as well as geometrically.
2. What is your profit/loss, P/L? Show it algebraically as well as geometrically.
Many people argue that a consumption tax is preferable to an income tax, because while income taxes distort both labour and capital markets, consumption taxes only distort labour markets. Explain why income taxes distort labour and capital markets. E..
Woidtke Manufacturing's stock currently sells for $30 a share. The stock just paid a dividend of $4.00 a share (i.e., D0 = $4.00), and the dividend is expected to grow forever at a constant rate of 10% a year. What stock price is expected 1 year from..
In January 201x, the spot price of crude oil was $45.65 a barrel and the one year futures price was $56.38 per barrel. The interest rate was about 0.15 percent. What was the net convenience yield? Interpret/explain that result. EXPLAIN IN DETAIL PLEA..
It will cost $4,000 to acquire a small ice cream cart. Cart sales are expected to be $3,200 a year for five years. After the five years, the cart is expected to be worthless as that is the expected remaining life of the cooling system. What is the pa..
If you purchase a zero coupon bond today for $225 and it matures at $1,000 in 11 years, what rate of return will you earn on that bond?
Last year Kruse Corp had $420,000 of assets, $403,000 of sales, $28,250 of net income, and a debt-to-total-assets ratio of 39%. Sales, costs, and net income would not be affected, and the firm would maintain the same debt ratio (but with less total d..
On May 1, 2006, Green Company issued $1,000,000 of 12% bonds dated January 1, 2006 for $975,000. The bonds mature on December 31, 2025, and pay interest semiannually on June 30th and December 31st. The firm's fiscal year ends on December 31st each ye..
A project will increase sales by $60,000 and cash expenses by $41,000. The project will cost $40,000 and be depreciated using straight-line depreciation to a zero book value over the 4-year life of the project. The company has a marginal tax rate of ..
Assume that a bond makes 10 equal annual payments of $1,000 starting one year from today. The bond will make an additional payment of $100,000 at the end of the last year, year 10. If the discount rate is 3.5$% per annum, what is the current price of..
Assume your firm is zero-growth and pays all its net income in dividends each year Also assume your firm can borrow money when it needs to at an interest rate of 6%. Currently your firm’s cost of equity (Rs) is 10%, but if any money is borrowed that ..
Explains what happens to a firm’s break-even point if it is able to lower its fixed operating costs but keeps its variable operating costs per unit constant.
What is the IRR of the following set of cash flows? (Round your answer to 2 decimal places. (e.g., 32.16))
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