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A stock price is currently $80. It is known that in 4 months it will be either $75 or $85. The risk-free interest rate is 5% per year with continuous compounding. Consider a 4-month European call option with a strike price of $80.
(1) Draw the binomial tree.
(2) Compute ? of the option.
(3) Compute the risk-neutral probability.
(4) Find the current value of the call option.
Kendra Enterprises has never paid a dividend. Free cash flow is projected to be $80,000 and $100,000 for the next 2 years, respectively; after the second year, FCF is expected to grow at a constant rate of 10%. The company's weighted average cost of ..
What are your feelings about plagiarism? Where should the line be drawn? Is it fair to flunk a writer who plagiarizes? Should a little plagiarism be allowed? Explain from the side of a student and from the side of an instructor
A stock is expected to pay a year-end dividend of $2.00, i.e., D1 = $2.00. The dividend is expected to decline at a rate of 5% a year forever (g = -5%). If the company is in equilibrium and its expected and required rate of return is 15%, The company..
Benson Corporation announced that its net income for the year ended June 30, 2015 is $1,600,000. The company also reported EBITDA of $5,000,000, and depreciation and amortization expense of $1,250,000. If the company's income tax rate is 50 percent, ..
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FB, Inc. declared a dividend of $2 per share, which was an increase of 25% from the prior year, yet AFB, Inc. stock declined by 3% the day of the announcement. DAS, Inc. declared a dividend of $2 per share, which was the same as the prior year, and i..
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Think of something you want or need for which you currently do not have the funds. It could be a vehicle, boat, horse, jewelry, property, vacation, college fund, retirement money, etc. Select something which costs somewhere between $2,000 and $50,000..
You have been relocated from Cleveland to San Francisco to begin your new career in finance. The relocation company offers you 3-2-1 Buy Down Financing. The primary home you find has a value of $729,000. You have a 8% down payment on a 30-year Fixed ..
You are analyzing Tiffany Corp, an upscale retailer. The regression estimate of the firm's beta is 0.75. Standard error of beta estimate is 0.50. The average unlevered beta of comparable specialty retailing firms is 1.15. Estimate the Cost of Capital..
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