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Consider the following option portfolio. YOU WRITE a July 2007 expiration call option on IBM with exercise price $90. YOU ALSO WRITE a July expiration IBM put option with exercise price $85. What will be the profit/loss on this position if IBM is selling at $87 on the option maturity date? What if IBM is selling at $95? The call sells at $5.50 and the put sells at $1.55.
Suppose that you read in The Wall Street Journal that a bond has a coupon rate of 9 percent, a price of 71.375% (of face value) , and pays interest annually. Rounded to the nearest whole percent, what would be the bond’s “current” yield? A 12-year bo..
Write a one to two page essay wherein you choose a nation state in which you would like to do business. In your essay describe the problems you might encounter in entering the foreign market and in running your business there.
A 20-year, 10 percent semiannual coupon bond, with a par value of $1,000 sells for $1,200 (assume that the bond has just been issue today). What is the bond's yield to maturity? What is the bond's current yield?
TacoCorp is considering a first round of venture capital investment. Taco is the majority shareholder with 1000 shares. Jenny and Kevin each have 250 shares in TacoCorp. Taco’s initial investment is $10000. The VC firm is valuing TacoCorp at $70000. ..
You own two risky assets, both of which plot on the security market line. Asset A has an expected return of 12.37% and a beta of 1.40. Asset B has an expected return of 14.13% and a beta of 1.65. If your portfolio beta is the same as the market portf..
O’Connell & Co. expects its EBIT to be $105,000 every year forever. The firm can borrow at 7 percent. O’Connell currently has no debt, and its cost of equity is 13 percent and the tax rate is 35 percent. The company borrows $136,000 and uses the proc..
Companies Udon and Lever are identical in every aspect except that Udon is un-leveraged while Lever has $15 million of 6 percent bonds outstanding. What value would MM estimate for each firm? What is the required return on equity (Ks) for Lever? What..
Raider Productions has to decide whether to build its warehouse in Dallas or Houston. This decision falls into the class of a. independent projects. b. mutually exclusive projects. c. contingent projects. d. marginal projects.
Bond J has a coupon rate of 4 percent and Bond K has a coupon rate of 10 percent. Both bonds have 13 years to maturity, make semiannual payments, and have a YTM of 7 percent. If interest rates suddenly rise by 2 percent, what is the percentage price ..
In order to decide upon a corporate stock investment, most analysts would first perform a industry analysis. What is an industry and why is this step important? Make sure to discuss the potential problems with defining an appropriate industry for com..
A firm has 100,000 shares of stock outstanding. The firm is considering borrowing $1.3 million at 7.5% interest and using the loan proceeds to repurchase 20,000 shares of stock. What is the value of the firm? Ignore Taxes.
You are considering two loans. The terms of the two loans are equivalent with the exception of the interest rates. Loan A offers a rate of 7.75 percent, compounded daily. Loan B offers a rate of 8 percent, compounded semi-annually. Which loan should ..
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