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A stock price is currently $20. It is known at the end of one month it will either by $23 or $18. The risk free rate is 6%. Suppose ST is the stock price at the end on one month.
a. What will be the value of a derivative that pays 2ST-40 at this time?
b. What will be the value of a derivative that pays 2ST-20 at this time?
The spread, which is the difference between the asked price and the bid prices, is a very important factor in the determination of liquidity of the asset or assets being traded. In the capital market a smaller spread between the asked and bid prices ..
If there is $30 million in retained earnings, at what dollar value will the marginal cost of capital go up? If flotation cost on common stock is $1.50, what will be the cost of the new common stock?
Cool Shoes (CS) had 2014 sales of $518 million. You expect sales to grow at 9% next year(2015), but, decline by 1% per year after until you settle to a long -run growth rate of 4%. You expect EBIT to be 9% of sales, increases in net working capital r..
If the cost of capital is low and there is little demand for the product, would companies still expand their capital investment?
You are managing a hedge fund. Today, you find that the stock of Microsoft is undervalued. So, you would want to buy Microsoft stocks. But you know that buying the stocks only will make you exposed to risk even if the stock is actually undervalued. H..
An investment company. Will speculate on the pound with a forward contract. The investment company expects the pound to depreciate from today’s spot rate of $1.95 to a spot rate of $1.85 in 90 days. The 90 day forward rate is $1.65. To make a profit,..
Describe the strategic importance to updating survey data. Explain the different methods for updating data. Provide an example to illustrate updating data.
As a middle-aged entrepreneur,Molly is planning the financial future of her family. So she seeks opinions from you, a financial advisor,about the matters listed below. Assume Molly is an Australian resident for taxation purpose.
A convertible bond is selling for $800. It has 10 years to maturity, a $1000 face value, and a 10% coupon paid semi-annually. Similar nonconvertible bonds are priced to yield 14%. The conversion price is $50 per share. The stock currently sells for $..
What factors have contributed to the rapid growth in the CDS market and Describe two strategies the company can use to hedge itself against defaults.
A firm has been able to manage its capital requirements in tune with the “pendulum effect”. It has just issued more debt to finance its latest project. What would be the next thing the firm will/should do?
Moonscape has just completed an initial public offering. The firm sold 2 million shares at an offer price of $8 per share. The underwriting spread was $.60 a share. The price of the stock closed at $12 per share at the end of the first day of trading..
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