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You want to buy a stock that is currently selling for $65. You forecast that in one year, the stock’s price will be either $100 or $24, with equal probabilities. There is a one-year call option on the stock available with an exercise price of $80. You are able to borrow at a rate of 6.50%. You would like to hedge your stock position using the call option.
a. What will be the call’s value if the stock price is $100 in one year? What will be the call’s value if the stock price is $24 in one year?
b. Assume that you can purchase fractional shares of stock. How many shares of stock would you buy?
The risk-free rate is 4.5%. What is the expected risk premium for this stock next year?
The dividend is expected to grow by 14% per year for the subsequent 3 years, adn then by 4% per year thereafter. at what price should the stock sell today?
What is the cost of new common equity considering the estimate made from the three estimation methodologies?
Drongo Corporation's 4-year bonds currently yield 7.4 percent. The real risk-free rate of interest, r*, is 2.7 percent and is assumed to be constant. The maturity risk premium (MRP) is estimated to be 0.1%(t - 1), where t is equal to the time to matu..
When a bond's rating improves from A to AA Question 3 options: the coupon rate will fall and the price will rise. the coupon rate will stay the same, but the price will rise. both the coupon rate will stay the same and the price will fall. both the c..
IPO your firm wishes to raise $10 million of net proceeds by going public. The anticipated aftermarket price (after the IPO) is $23 and the firm plans to issue the new shares at a price that is $3.00 below the anticipated aftermarket price.
Which of the following payments that a business makes is NOT “contractual” ("contractual" means must pay otherwise go bankrupt)?
What is the maturity risk premium for the 2-year security?
Jenner’s is a multi division firm that uses its overall WACC as the discount rate for all proposed projects.
Pizza has finally narrowed down to two college towns, Collegeville and University City, to open their new location this August, just in time for the fall semester. The Collegeville location requires an initial investment of $126,000, whereas Universi..
If Sepia goes forward with the plan, what will be its new stock price? What is the present value of growth opportunities?
In 2012 Whole Foods had sales of $74 billion and a net income of $17 billion, and its year-end total assets were $121.31 billion. The firm's total-debt-to-total-assets ratio was 45.3%. Based on the DuPont equation, what was the Microsoft ROE in 2012?..
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