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Suppose the 1-year futures price on a stock-index portfolio is 1,624, the stock index currently is 1,600, the 1-year risk-free interest rate is 3%, and the year-end dividend that will be paid on a $1,600 investment in the market index portfolio is $20.
a. By how much is the contract mispriced?
b. Formulate a zero-net-investment arbitrage portfolio and show that you can lock in riskless profits equal to the futures mispricing.
Compute the IRR static for Project E. The appropriate cost of capital is 7 percent.
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If Sarah can earn 7% annually for the next 26 years, the amount of money she will have to invest today is $______.
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Manteca Co. issues only common stock and coupon bonds. The firm has a debt-equity ratio of 1/3. The cost of equity is 13.7 percent and the pre-tax cost of debt is 9.4 percent. The tax rate is 35 percent. What is its weighted average cost of capital (..
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