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You are given the following information of a call option on a stock:
• The expected return on the stock is 30% compounded continuously.
• The continuously compounded risk-free interest rate is 2%.
• The call elasticity is 2.3.
(a) Find the risk premium on the option.
(b) Find the expected annual continuously compounded return on the call option.
A project that provides annual cash flows of $28,500 for nine years costs $138,000 today. If the required return is 8 percent, the NPV for the project is $ and you would the project. If the required return is 20 percent, the NPV is $ and you would th..
Monica has decided that she wants to build enough retirement wealth that, if invested at 9 percent per year, will provide her with $3,600 of monthly income for 20 years. To date, she has saved nothing, but she still has 25 years until she retires. Ho..
what are the expected return and standard deviation of the return of the portfolio? is the portfolio more risky than Safe Inc. Explain?
what do you expect the price of the bond to be in two years?
Great Wall Pizzeria issued 6-year bonds one year ago at a coupon rate of 6.3 percent. what is the current bond price?
Consider a binomial model with u = 1.02,d = 100 102, δ = 0 and interest rate r of 5% a year, compounded continuously. Using T = 1 maturity of one year, initial stock price S(0) = 100 and N = 4 periods, and the premium of the European Put PE(K) for K ..
Diane Carter is interested in buying a five-year zero coupon bond with a face value of $1,000. She understands that the market interest rate for similar investments is 7.62 percent. Assume annual coupon payments. what is the current value of this bon..
Duke Energy has recently issued a bond with the following characteristics: maturity: 20 years, coupon rate: 8% (paid semi-annually), face value: $1000. Your investment advisor has told you that the yield-to-maturity on this bond is 7%. What should be..
Bright Sun, Inc. sold an issue of 30-year $1,000 par value bonds to the public. The bonds had a 13.04 percent coupon rate and paid interest annually. It is now 19 years later. The current market rate of interest on the Bright Sun bonds is 11.22 perce..
Suppose Optimal Risky Portfolio has the following characteristics:
How much should you be willing to pay for one share of stock if the company just paid a $1 dividend, you expect the dividends to increase by 5% annually, and you need a 12% return on your investment? (Show calculation)
H. Cochran, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2,280,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life. What are the net cash flows of ..
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