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The price of a European call option on a stock with a strike price of $60 is $7. The stock price is $62 and time to maturity is 2 years. The continuously compounded risk-free zero rate is 5.5%, 6%, 6.2% and 6.5% for six-month, 1year, 1.5years, and 2 years, respectively. A dividend of $2 each is expected in six months, 1 year, and 1.5years. What is the price of a two-year European put option on the stock with a strike price of $60?
Choose two decision-making tools you learned in our materials this week and explain how you would use them to make a decision with an actual problem you have faced in your professional life.
The stockholders’ equity accounts of Castle Corporation on January 1, 2015, were as follows. Journalize the transactions and the closing entry for net income. Enter the beginning balances in the accounts, and post the journal entries to the stockhold..
Hubbard Industires is an all-equity firm whose shares have an expected return of 9.9%. Hubbard does a leveraged recapitalization, issuing debt and repurchasing stock, until its debt-equity ratio is 0.54. Due to the increased risk, shareholders now ex..
You are asked to project the feasibility of opening a new outpatient clinic. What line item(s) represent variable costs? Why?
A firm wishes to maintain a growth rate of 8 percent and a dividend payout ratio of 62 percent. The ratio of total assets to sales is constant at 1, and the profit margin is 10 percent. What must the debt-equity ratio be if the firm wishes to keep th..
Consider a homebuyer/investor who plans to buy a new house, the price of which is 1 million dollars. Suppose the buyer does not have any initial savings for the down payment. That is, if the mortgage asks him to repay more than $ 50,000 per year (thi..
Which one of the following markets involve liquid securities with standardized contract features such as stocks and bonds?
A JIT system uses Kanban cards to authorize movement of incoming parts. In one portion of the system, a work center uses an average of 118 parts per hour while running. The manager has assigned an inefficiency factor of 0.22 to the center. Standard c..
You have your choice of two investment accounts. Investment A is a 13-year annuity that features end-of-month $1,100 payments and has an interest rate of 6.7 percent compounded monthly. Investment B is a 6.2 percent continuously compounded lump sum i..
Bruce & Co. expects its EBIT to be $89,000 every year forever. The company can borrow at 5 percent. The company currently has no debt, its cost of equity is 8 percent, and the tax rate is 35 percent. The company borrows $102,000 and uses the proceeds..
COST OF COMMON EQUITY Percy Motors has a target capital structure of 40% debt and 60% common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 9%, and its tax rate is 40%. Percy's CFO estimates that the comp..
Suggest the financial ratio that most financial analysts would use to evaluate the financial condition of the company. Provide support for your rationale.
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