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Question: A ounce of gold currently sells for $1,000. The annual continuously compounded risk-free rate is 6%.
(a) Find the arbitrage-free value for the strike K for a one-year forward of gold per ounce. (Hint: This arbitrage-free strike is also called 'forward delivery price' or 'value of the forward contract at time 0')
(b) Suppose you take a long position in this one-year forward of gold with the arbitragefree strike from (a). Half a year later, the gold price is $930. Find the value of your long position at this time (half a year after you entered the contract), assuming the annual continuously compounded risk-free rate is still 6%. What is the value of the short position at this time?
Asset A was research equipment costing $17,000 and having a 3-year recovery period. Asset B was duplicating equipment having an installed cost of $45,000 and a 5-year recovery period. Using the MACRS depreciation percentages in Table 4.2, prepare a d..
what are the components of an interest rate? why is it important for accountants to understand these
Angiletta Corporation is considering the new project requiring $30,000 investment in test equipment with no salvage value. Calculate the net present value of investment if straight-line depreciation is used. Use 10% as the discount rate.
A commercial bank has $200 million of floating-rate loans yielding the T-bill rate plus 2 percent. These loans are financed with $200 million of fixed-rate.
What is the breakeven point in sales dollars for Win?
Summers corp, currently has an EPS of 2.40 and the benchmark PE for the company is 23. Earnings are expected to grow at 5% annually.
What is the full effect of this purchase on bank deposits and the money supply if borrowers return only 90 percent of these funds to their banks in the form of transaction deposits?
Find the line of best fit (regression line) and graph it on the scatterplot. State the equation of the line. State the slope of the line of best fit . Carefully interpret the meaning of the slope in a sentence or two.
1. Where do analysts get financial information about companies? What are their concerns about the information? 2. Financial analysts are generally optimists who believe what they're told. Right or wrong? Explain.
Stand-Alone Principle. Suppose a financial manager is quoted as saying, "Our firm uses the stand-alone principle.
Explain why banks, which would seem to have a comparative advantage in gathering information, have not eliminated the need for the money markets?
An six-year annual-pay coupon bond was issued with a face value of $1000 and a coupon rate of 12%. It is now 1.25 years later and the yield-to-maturity is 9%. (Keep in mind that the cash flows happen 0.75 years, 1.75 years, 2.75 years, etc. from n..
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