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You come across a European call that has 6 months to expiration and has an expiration price of $30 which is priced at $2 by the market. The stock is currently selling for $29 and has expected dividends of $0.50 in two months and the same again in five months. Interest rates have a flat term structure at 10%. Calculate the price of a European put option with a six-month expiration and a strike price of $30.
You borrow $11M by issuing a par-value bond that has a 10-year maturity, promises an annual coupon payment of 5 percent, and has a face value of $10M. The expected return on this bond is also 5 percent. What is the value of this bond, as determined b..
Two sisters each open IRAs in 2011 and plan to invest $3,000 per year for the next 30 years. Mary makes her first deposit on January 1, 2011, and will make all future deposits on the first day of the year. Jane makes her first deposit on December 31,..
Suppose you consider buying a share of stock at a price of $55. The stock is expected to pay a dividend of $6 next year and to sell then for $57. The stock risk has been evaluated at β = 0.5. Using the SML, calculate the fair rate of return for a sto..
What do you predict would happen to these measures if the notional value of a popular contract were cut in half? What is each trader’s net position in the contract at the end of the day? What are trading volume, open interest, and the notional values..
On May 10, a company issued for cash 2,000 shares of no-par common stock (with a stated value of $4) at $17, and on May 15, it issued for cash 3,000 shares of $17 par preferred stock at $61. Journalize the entries for May 10 and 15, assuming that the..
Square is a device that transforms a smart phone into a credit debit card machine. How is a Square using wireless network to gain a competitive advantage? What can Square do to maintain its completive advantage and become more profitable?
Read the "Global Economic Crisis" story. - Discuss credit default swaps and the effects it had on the financial crisis.
Jiminy's Cricket Farm issued a 30-year, 7.4 percent semi annual bond 6 years ago. The bond currently sells for 85 percent of its face value. The book value of this debt issue is $108 million.
Although the Chen Company's milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new mill..
Your parents will retire in 14 years. They currently have $270,000, and they think they will need $1 million at retirement. What annual interest rate must they earn to reach their goal, assuming they don't save any additional funds?
A research division of a large consumer electronics company has developed a new type of mp3 player. The production costs in the current period will be $1,399,100. The new product will produce a cash flow of $500,000 a year for 4 consecutive years beg..
A common stock will have a price of either $85 or $35 in 2 months. A two month put option on the stock has a strike price of $40. Create a riskless portfolio. Buy one put option. How many shares should you buy? Make sure that you show or explain all ..
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