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You write a put on Kane with an exercise price of $3.50 and a premium of $1.00. At the same time you buy a call on Kane with an exercise price also at $3.50 and a premium of $1.25. Calculate the profit or loss on both positions simultaneously if just prior to option expiration Kane’s stock price is $3.00.
a. ($1.25)
b. ($0.50)
c. ($1.75)
d. $0.00
e. ($0.75)
Assume that Armstrong has only two capitalization alternatives An all equity capital structure with $400 million of stock or $200 million of 11% debt plus 200 million of equity. Calculate the ROE and TIE for each alternative at each EBIT level. Discu..
A company would like to invest in a capital budget project that will be worth $500,000 in 40 years. How much should the company invest today, assuming an average inflation rate of 2% and a 10% annual return?
Assume that you deposit $700 every three months at 6% annual rate, compounded quarterly. How much will you have at the end of 20 years? You borrow a five year $13,000 loan with monthly payments of $250. What is the annual percentage rate (APR) on the..
The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has a cost of $130,000. The project will produce 800 cases of mineral water per year indefinitely. What is the NPV of the project? Do not round int..
You are considering investing in the bonds issued by ABC Corporation. They have a coupon rate of 6% and a maturity date of March 21, 2046. ABC Corp is an industrial firm and these bonds are not rated by Moody’s or S&P. As a bond investor what six rat..
The risk premium is computed by ______ the average return for the investment.
You are bearish on AT&T stocks and decide to sell short 100 shares at the current market price of $15 per share. The initial margin requirement is 50% and the maintenance margin requirement is 30%. How high can the price of the stock go before you ge..
Oxygen Optimization stock has an expected return of 14.49 percent and pays annual dividends that are expected to grow at a constant rate forever. The firm’s next dividend is expected in 1 year from today and is expected to be 24.12 dollars. If the fi..
When additional shares of stock are issued, the earnings per share decreases(Assuming no change in total earnings). Explain how this occurs and what is the impact on a firm's decision to raise capital by equity, as opposed to debt.
A debt security is a claim on a mortgage pool (e.g., a Ginnie Mae pass-through security)with a face value of $100,000. The mortgages pay 9 percent and have an expected life of 20 years. Currently, interest rates are 9 percent. If you purchase the sec..
You have $25,000 in an investment account today. How much will be in the account in 30 years if the account earns (a) 8% per year, (b) 8% compounded semiannually, (c) 8% compounded quarterly, (d) 8% compounded monthly, and (e) 8% compounded daily? Co..
The DASH80 Company has just sold non-strategic assets for $2 million for the purpose of self-financing a capital expansion program that may include purchase of a piece of manufacturing equipment for $1.5 million. The alternative is to lease the same ..
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