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Suppose that at time 0, the market price of a share of XYZ stock is $24.90, that the stock pays dividends at a continuous annual rate of 2.5%, and that the risk free annual interest rate with continuous compounding is 4.9%. A 3 month prepaid forward contract is available for $25.10. Construct an arbitrage portfolio for this contract. Explain how you can exploit this situation to earn $10,000 risk free with certainty in three months.
Verano Inc. has two business divisions a software product line and a waste water clean-up product line. The software business has a cost of equity capital of 10% and the waste water clean-up business has a cost of equity capital of 7%. Verano has 50%..
Of the capital budgeting techniques discussed, which works equally well with normal and non-normal cash flows and with independent and mutually exclusive project?
A stock is expected to pay a dividend of $3.00 the end of the year (that is, D1 = $3.00), and it should continue to grow at a constant rate of 4% a year. If its required return is 14%, what is the stock's expected price 1 year from today? Round your ..
A stock has had returns of 16 percent, 23 percent, 15 percent, −11 percent, 30 percent, and −5 percent over the last six years. What are the arithmetic and geometric returns for the stock?
Greenview Hospital operated at 120% of normal capacity in two of its departments during the year. It operated 120% times 20,000 normal capacity direct labor nursing hours in routine services and it operated 120% times 20,000 normal capacity equipment..
You have been offered the opportunity to invest in a project that will pay $1,935 per year at the end of years one through three and $13,979 per year at the end of years four and five. If the appropriate discount rate is 20.0 percent per year, what i..
Lohn Corporation is expected to pay the following dividends over the next four years: $14, $10, $9, and $4.50. Afterward, the company pledges to maintain a constant 4 percent growth rate in dividends forever. If the required return on the stock is 10..
Fresno Corp. is a fast-growing company that expects to grow at a rate of 23 percent over the next two years and then to slow to a growth rate of 14 percent for the following three years. If the last dividend paid by the company was $2.15.
Consider a four-year project with the following information: initial fixed asset investment = $450,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $26; variable costs = $16; fixed costs = $140,000; quantit..
Suppose today is January 1, 2016; on January 1, 2006, XYZ industries issued a 30-year bond with a 5% coupon, paid semi-annually, and a $1,000 face value payable on January 1, 2036. The bond now sells for $975. Assume a 34% tax rate. Suppose the marke..
Suppose the dividends for the Seger Corporation over the past six years were $1.15, $1.23, $1.32, $1.40, $1.50, and $1.55, respectively. Compute the expected share price at the end of 2014 using the perpetual growth method. Assume the market risk pre..
Locke sold machinery used in his business for $50,000. He purchased the equipment three years ago for $55,000 and deducted $22,800 MACRS depreciation through date of sale. Compute and characterize Locke's gain on sale.
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