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On May 15th of a certain year XYZ Corp. had 100,000 shares of ABC stock. The ABC stock was traded at $15. XYZ planned to sell the stocks in a month. But they had concerns that the stock price might fall below $14 by then. The firm would like to use stock options to hedge the position. Related call options were traded at $2.50 and related put options were traded at $0.25. Answer the questions below. a. Explain XYZ Corp.’s risk exposure. How can the change in ABC stock price affect the firm’s cash flow? b. Should the company choose call options or put options? Should they take the long position or the short position? c. How can the stock options help to hedge the risk? d. Would you recommend the company to use forwards hedge? Explain. e. Suppose on May 15th XYZ Corp. purchased options to hedge the risk. On June 15th the spot price was $9. Calculate the cash flows on May 15th and June 15th.
Calculate the future value of the annuity, assuming that it is (1) An ordinary annuity. (2) An annuity due.
What expected rate of return would a security earn if it had a .50 correlation with the market portfolio and a standard deviation of 55.5 percent?
Joel, a former employee of Network Bank, an online bank, decided to exact some revenge. Though his official access to the bank's records was removed, he was able to hack into the bank's database of customer information, obtaining passwords associated..
Which of these would likely pay the highest interest? Why? All things being equal, which of these is the least risky?
Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within ±10 percent.
Find the interest rate (or rates of return) in each of the following situations. You borrow $700 and promise to pay back $728 at the end of 1 year.
Which of the following is true? A firm’s overall growth is limited by:
Discuss the pros and cons of having the managers of a company formally announce what the company’s dividend policy will be in the future.
Suppose there are two mortgage bankers. Banker 1 has two $800,000 mortgages to sell. The borrowers live on opposite sides of the country and face an independent probability of default of 6%, with the banker able to salvage 40% of the mortgage value i..
What is the true initial cost figure the company should use when evaluating its project?
Assume that three patient service departments are Adult Services, Pediatric Services, and Other Services. What is the dollar allocation to each patient services department if patient services revenue is used as the cost driver? What is the dollar all..
Which of the following statements is are true regarding flotation costs?
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