Reference no: EM131041210
1. Just as Times Mirror is about to agree to the PEPS transaction, Congress passes a sweeping tax reform of the rules on constructive sales, and Morgan Stanley must return to the drawing board to design a new security that will enable Times Mirror to exit its position in Netscape without incurring capital gains taxes. Morgan Stanley proposes a new security, PEPS II, which obligates Times Mirror to deliver cash equal to the price of one share of Netscape in two years if the price of Netscape is between 40 and 70. If the price is greater than 70, Times Mirror must deliver cash equal to $70. If the price is less than $40, Times Mirror must deliver $40. In addition, Times Mirror must pay a $4 coupon at the end of one year and at maturity (at the end of two years). Assume the current price of Netscape is $45, ignore any credit risk of Times Mirror, assume that Netscape will not pay dividends, assume that the continuously compounded interest rate is 3%, and volatility is 85%.
a. First, consider other ways that TM might consider hedging its Netscape exposure (ignore taxes and regulations in answering this question). Specifically, describe what positions Times Mirror could take in 1) a Netscape call, 2) a Netscape put, 3) a Netscape forward in order to hedge their exposure. (Answer each of those subparts separately---i.e., I am asking how you would use a call alone; a put alone; and a forward alone, as opposed to in combination with other derivatives.)
b. From the perspective of the investor, fully describe the PEPS II in terms of "building blocks" such as calls, puts, forwards, etc.,
c. From the perspective of the investor, what is the value of the PEPS II (ignore transaction costs and assume Black-Scholes for any option valuations)?
d. Suppose the offering is brought to market priced at $45. You have access to the offering and sense an arbitrage. Describe exactly the positions you would take to execute the arbitrage, assuming you can trade in calls, puts, forwards, and the underlying shares; you can also borrow and lend at the prevailing interest rate.
|
What is the size of the month-end payments
: a. What is the size of the month-end payments? Round to the nearest cent. b. What was the total amount paid to settle the loan? Round to the nearest cent.
|
|
Determine the speed at which its end a strikes the stop at c
: Assume the door is a 180 lb thin plate having width of 10 ft. a = 3.5 ft, b = 5 ft having a width of 10 .
|
|
Accumulated amount of the debt
: a. What would be the accumulated amount of the debt in 3 years? Round the nearest cent. b. What would be the accumulated amount of the debt in 5 years? Round to the nearest cent.
|
|
How the unique ohysical and chemical properties contribute
: How the unique ohysical and chemical properties of water contribute to the importance of water for life on earth to survive. How the methods of experimtation and observation have changed throughout the history of science
|
|
Execute the arbitrage
: Suppose the offering is brought to market priced at $45. You have access to the offering and sense an arbitrage. Describe exactly the positions you would take to execute the arbitrage, assuming you can trade in calls, puts, forwards, and the unde..
|
|
Determine the net work ouput per cycle
: Determine (a) the efficiency and (b) the net work output per cycle. Assume ideal gas model for air with k = 1.4.
|
|
Craft list of motivational rewards to increase productivity
: Craft a list of motivational rewards to increase productivity and performance within the workplace. Do you believe that money or recognition is more important to increasing the performance and productivity of employees? Defend your answer.
|
|
Did a person find a way to acquire some
: Did a person find a way to acquire some? Rocking the actual colorings of his or her ex - company, that boot arrives attired in a very Black higher having Freshwater in addition to Bright car detailing located through the boot.
|
|
Potential losses and profits from the position
: What should you do and verify the potential losses and profits from the position.
|