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a) State the necessary conditions to identify a normal contango market.
b) MG identified the market as normal backwardation and did the action accordingly. What condition they could have monitored to anticipate the contango volatility?
c) Explain carefully why if you have an upward sloping basis curve in a backwardation market, you should take short position instead of a long one as the MG did.
What is the level of current assets for project A expected to be at time 1 if the level of current liabilities for project A
The share price of a stock is 25 today. Calls and puts on the stock have the following quotations. Identify and explain three errors in the quoted option prices.
ABC Printing Inc. raised $140 million in new debt and used this to buy back stock. After the recap, ABC's stock price is $7.6. If ABC had 70 million shares of stock before the recap, how many shares, in millions, does it have after the recap? (Enter ..
What is the value of a call option if the underlying stock price is $84, the strike price is $80, the underlying stock volatility is 42 percent, and the risk-free rate is 4 percent? Assume the option has 135 days to expiration.
A frequent criticism of the management of publicly-owned American companies is that they are too short-term oriented, too focused on fast returns, and that this negatively impacts their long term capital budgeting.
The Timberlake-Jackson Wardrobe Co. has 11.6 percent coupon bonds on the market with ten years left to maturity. The bonds make annual payments.
At year-end 2013, Wallace Landscaping’s total assets were $1.0 million and its accounts payable were $300,000. Sales, which in 2013 were $2.4 million, are expected to increase by 30% in 2014. What was Wallace's total long-term debt in 2013? How much ..
Quantum Inc., a U.S.-based corporation, borrows SF 2,000,000 from the Swiss bank, UBS. The entire principal is to be repaid at the end of the year, and the interest rate is 4% per annum to be paid at the end of the year in Swiss francs. Suppose that ..
A temporary life annuity is supposed to pay an annual payment of $4,200 to a young man for a period of 10 years but would not start until 5 years from now. What is the single premium for this annuity?
Harold Reese must choose between two bonds: Bond X pays $95 annual interest and has a market value of $905. It has 13 years to maturity. Bond Z pays $85 annual interest and has a market value of $910. Compute the current yield on both bonds.
Phillips Fine Fixtures Inc. wishes to issue new bonds but is uncertain how the market would set the yield to maturity. The bonds would be 20-year, 7% annual coupon bonds with a $1,000 par value. Fisher has determined that these bonds would sell for $..
You buy a share of stock, write a one-year call option with a strike price X = $28, and buy a one-year put option with a strike price X = $28. Your net initial cost to establish the entire portfolio is $26.70. What must be the risk-free interest rate..
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