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You are thinking of investing in a stock that is selling for $60 and that you think will go up in price over the next six months. The six-month call option with exercise price = $60 sells for a premium of $5. The risk-free rate is 1% annually. Consider the following strategies for investing $5,000:
(i) invest everything in the stock
(ii) invest everything in the call options
(iii) invest $1,000 in the call option and the rest in the risk-free rate
(a) Create a table that shows the rate of return on each investment if the following stock prices occur in six months: 30, 40, 50, 60, 70, 80, 90, 100
(b) Draw a chart that shows how the rate of return varies with the stock price for each of the investment alternatives
question 1consider an asset which pays continuous dividend.nbsp letnbsp s 100 and r10.nbspsuppose the 6-month futures
the dividends are growing at 5%, flotation costs are $2 per share and the firm will net $72 per share upon the sale of the stock. What is the firm's cost of common equity?
You own 400 shares of Stock A at a price of $70 per share, 450 shares of Stock B at $85 per share, and 850 shares of Stock C at $31 per share. The betas for the stocks are 0.8, 1.6, and 0.6, respectively. What is the beta of your portfolio?
Dan is going to buy a 19 year bond that pays a coupon rate of 11.56% per year and has a $1,000 par value. The bond currently priced at $1,326.92. What is the yield to maturity of this bond? Assume annual coupon payments. Round the answer to two decim..
What is the optimal amount of each special ingredient for each drink and what is the optimal cost of the special ingredients in total?
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Call protection for the next 10 years, and a call premium of $25. What is the yield to call (YTC) for this bond if the current price is 110 percent of par value?
A stock that went from $43 per share at the beginning of the year to $47 at the end of the year and paid a $3 dividend provided an investor with a return of ____%: (Keep two decimals)
Calculate the price of a 5.8 percent coupon bond with 10 years left to maturity and a market interest rate of 7.0 percent. (Assume interest payments are semi-annual.)
Which of the following best describes investment risk?
Hollister & Hollister is considering a new project. The project will require $543,000 for new fixed assets, $218,000 for additional inventory, and $42,000 for additional accounts receivable. Short-term debt is expected to increase by $165,000. The pr..
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