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You own a put option on Ford stock with a strike price of $10. The option will expire in exactly six months’ time.
a. If the stock is trading at $8 in six months, what will be the payoff of the put?
b. If the stock is trading at $23 in six months, what will be the payoff of the put?
c. Draw a payoff diagram showing the value of the put at expiration as a function of the stock price at expiration.
You observe that the current interest rate on short-term U.S. Treasury bills is 2.85 percent. You also read in the newspaper that the GDP deflator, which is a common macroeconomic indicator used by market analysts to gauge the inflation rate, current..
Common costs- Are fixed costs that are not directly traceable to an individual product line. Normally not avoidable
Gamma Electronics is considering the purchase of testing equipment that will cost $500,000 to replace old equipment. Assume the new machine will generate after-tax savings of $250,000 per year over the next four years. If Gamma Electronics has a 15% ..
You have been asked by the CFO to prepare a financial forecast for the coming year, using an Excel model, and then to present your forecast to the executive officers. Would you want to set up the model with a number of scenarios? Explain why.
You placed $7,820 in a savings account today that earns an annual interest rate of 6.75 percent, compounded semiannually. How much will you have in this account at the end of 37 years? Assume that all interest received at the end of the period is rei..
(Annuity Payments) To pay for your child’s education, you wish to have accumulated $14,000 at the end of 11 years. To do this you plan to deposit an equal amount into the bank at the end of each year. How long will it take to pay off a loan of $54,00..
If the Austin Company had interest after tax of $10 million, what is the amount of net borrowing for the Austin Company for this period?
Several alternative definitions were presented for a new product. How would a company’s marketing strategy by affected if it used (a) the legal definition, or (b) a behavioral definition?
You are considering buying a security that makes annual payments (to you) that grow by 1% per year forever, with the first payment made one year from today and in the amount of $2. Your required return is 6% per year for this security. How much shoul..
Your firm is based in the U.S. and one of your primary suppliers is located in the Czech Republic. One way for your firm to transfer foreign exchange risk (associated with your firm s accounts payable) to your supplier is to _____. A foreign exchange..
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. If the yield to maturity is 7.9 percent, what is the current price of the bond?
A project costing $6,200 initially should produce cash inflows of $2,860 a year for three years. After the three years, the project will be shut down and will be sold at the end of Year 4 for an estimated net cash amount of $3,300. What is the net pr..
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