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A portfolio manager in charge of a portfolio worth $10 million is concerned that the market might decline rapidly during the next six months and would like to use options on the S&P 100 to provide protection against the portfolio falling below$9.5 million. The S&P 100 index is currently standing at 500 and each contract is on 100 times the index. a. If the portfolio has a beta of 1.0, how many put options should be purchased? b. If the portfolio has a beta of 1.0, what should the strike prices of the put options be?
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.88 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be w..
First Simple Bank pays 8.3 percent simple interest on its investment accounts. First Complex Bank pays interest on its accounts compounded annually. What rate should the bank set if it wants to match First Simple Bank over an investment horizon of 13..
The Connors Company's last dividend was $1.00. Its dividend growth rate is expected to be constant at 15% for 2 years, after which dividends are expected to grow at a rate of 10% forever. Connors' required return (rs) is 12%. What is Connors' current..
List and explain the three financial factors that influence the value of a business.
Bella, Inc. has net income of $3,500,000. The company‘s depreciation expense is $650,000, its interest expense is $200,000, and its income tax rate is 40%. What is its taxable income?
A corporation has $5,000,000 of 8% bonds and $3,000,000 of 10% preferred stock outstanding. The firm's financial break even (assuming a 40% tax rate) is?
You purchased a five year annual payment 6% coupon bond for $1,000 and you planned on holding it to maturity. However right after you bought the bond it was called at $1,043.29 when all interest rates fell to 5% and remained there for the full five y..
Micro Spinoffs, Inc., issued 20-year debt a year ago at par value with a coupon rate of 6%, paid annually. Today, the debt is selling at $1,130. If the firm’s tax bracket is 30%, what is its after-tax cost of debt?
Five years ago you borrowed 200,000 to finance the purchase of a 240,000 home. The interest rate on this (old) mortgage is 10% MEY, and the level payments were made monthly to amortize the loan over 30 years (you did not curtail the loan in any way, ..
As part of your financial planning you wish to purchase q new car exactly 7 years from today . The car you wish to purchase costs 14000 today and your research indicates that it's price will increase by 3% to 6% per year over the next 7 years.
Sally and Ed each own property with a fair market value less than the amount of the outstanding mortgage on the property and also less than the original cost basis. They each were able to convince the mortgage holder to reduce the principal amount on..
Assume the real rate of return in the economy is 2.5%, expected rate of inflation is 4%, and the risk premium is 5.9%, what is the risk-free rate and your required return?
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