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1. Two call options with strikes K1 and K2 with K1 < K2 are trading at prices c2 > c1. Explain why this is not intuitively reasonable.
2. Explain what securities I need to buy or sell to create a portfolio payoff that equals |ST − K1| − |ST − K2| where K1 and K2 are strike prices (the symbol |.| means absolute value).
3. You buy an ATM straddle on a stock that is trading at 100. You pay $5 for the straddle. How much does the stock need to go up or down before you break even on the trade?
4. A currency board
a. Does little to stabilize a currency's value.
b. Is worth considering only if the government can convince investors that the exchange rate will be maintained.
c. May reduce fears that the local currency will weaken even if the currency board is expected to remain in place for only a few weeks.
d. All of these choices are correct.
You are planning your retirement in 10 years. You currently have $168,000 in a bond account and $608,000 in a stock account. You plan to add $7,200 per year at the end of each of the next 10 years to your bond account. The stock account will earn a r..
Which alternative would you prefer: (1) 1 percent a month, compounded monthly, or (2) 1/2 percent a month, compounded semimonthly (24 periods)?
Due to increasing value of the Yuan the Chinese electronics manufacturers have been suffering losses. At the same time the cost of a rare-earth mineral used in production of their goods has been increasing steadily due to increasing demand. You have ..
How can currency risk and political risk be minimized when one is making foreign direct investments?
How does the formula used by a given social security system affect the benefits of the system?
Jiminy's Cricket Farm issued a 30-year, 6 percent semi-annual bond 4 years ago. The bond currently sells for 84 percent of its face value. The book value of the debt issue is $21 million. The company's tax rate is 32 percent. What is the company's to..
The common stockholders receive two types of return from their investment. What are they?
What is the formula to compute the yield to Maturity of this bond purchase for Bill?
what is the profit or loss associated with Copper?
1) Double taxation of corporate profits refers to: 2) Social enterprises emphasize:
What is the firm’s sustainable growth rate? If the firm grows at its sustainable growth rate, how much debt will be issued next year?
Horizon Value Current and projected free cash flows for Radell Global Operations are shown below. Actual 2013 2014 Projected 2015 2016 Free cash flow $614.68 $675.36 $715.41 $758.33 (millions of dollars) Growth is expected to be constant after 2015, ..
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