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The current price of a non-dividend-paying stock is $30. Over the next six months it is expected to rise to $36 or fall to $26. Assume the risk-free rate is zero.
a) What long position in the stock is necessary to hedge a short call option when the strike price is $32? Give the number of shares purchased as a percentage of the number of options that have been sold.
b) What is the value the call option?
Calculating Cost of Debt Gauss Corporation issued 20-year Bonds bearing a 9% coupon, payments made semiannually, 7 years ago. The bonds currently sells for 108 percent of par value. The company’s tax rate is 38 percent. The Book Value of this issue i..
In 2008 Virgil Hurd was kicked out of his home by his ex-wife. At that time he moved into his horse trailer (the “Trailer”) to keep warm. The Trailer is twenty feet long and six feet wide. Virgil gets electricity for the Trailer from a socket and wat..
The staff of Jefferson Medical Services has estimated the following net cash flows for food services operation that it may open in its outpatient clinic. Furthermore, the salvage value cash flow at the end of year 5 could be as low as $0 or as high ..
As the winning contestant in a television game show, you are considering the prizes to be awarded. You must indicate to the sponsor which of the following two choices you prefer, assuming you want to maximize your wealth. Assume it is now January 1, ..
A conditional sale contract requires two payments three and six months after the date of the contract. Each payment consists of $1,890 principal plus interest at 12.5% on $1,890 from the date of the contract. One month into the contract, what price w..
An investments internal rate of return equates
What rate should you charge for these services (assuming one charge rate for all payers)? (This gives you your total A/R.) Calculate the total charges for all cases based on this rate.
Valles Global Industries is considering preventive maintenance on a machine. If they spend $5,000,000 now, they will avoid paying $15,000,000 in two years from now. What rate of return did they earn?
In 1895, the first Putting Green Championship was held. The winner’s prize money was $210. In 2014, the winner’s check was $1,470,000. What was the percentage increase per year in the winner’s check over this period? If the winner’s prize increases a..
National Trucking has paid an annual dividend of $1.00 per share on its common stock for the past fifteen years and is expected to continue paying a dollar a share long into the future.
A company enters into a futures contract to sell 5,000 bushels of wheat for 750 cents per bushel. The initial margin is $3,000 and the maintenance margin is $2,000. What price change would lead to a margin call? Under what circumstances could $1,500 ..
Modern Artifacts can produce keepsakes that will be sold for $80 each. Nondepreciation fixed costs are $2,800 per year, and variable costs are $40 per unit. What is the accounting break-even level of sales if the firm pays no taxes? What is the NPV b..
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