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You have taken a long position in a call option on IBM common stock. The option has an exercise price of $155 and IBM's stock currently trades at $159. The option premium is $7 per contract. a. How much of the option premium is due to intrinsic value versus time value? Option Premium Intrinsic value $ Time value b. What is your net profit on the option if IBM’s stock price increases to $169 at expiration of the option and you exercise the option? (Negative amount should be indicated by a minus sign.) Net profit $ per share c. What is your net profit if IBM’s stock price decreases to $149? (Negative amount should be indicated by a minus sign.) Net profit $ per share
Ellen and Rick are married with one dependent child. They have AGI of $355,300, and itemized deductions consisting of $20,000 state income taxes and $20,000 medical expenses, after applying the 10 percent of AGI limitation. Itemized deductions allow..
Carolina Fastener, Inc., makes a patented marine bulkhead latch that wholesales for $6.12. Each latch has variable operating costs of $3.42. Fixed operating costs are $49,600 per year. Calculate Carolina Fastener's operating breakeven point. Calculat..
A company's debt is given by a bond that will mature in two years. After two years the company will terminate all activity. The company unlevered equity value in two years can be $17 millions with a 50% probability or $14 millions with probability 50..
Cash advance (convenience) checks can be used for which of the following purchases. Which of the following is an example of an unsecured debt?
Based on economists’ forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: R1 = 1.30% E(2r1) = 2.45% L2 = 0.05% E(3r1) = 2.55% L3 = 0.10% E(4r1) = 2.85% L4 = 0.12% Using the l..
By using the information above and applying the Cost-of-Carry Model, verify if there is an arbitrage opportunity. Step (2) In addition, clearly explain and illustrate the arbitrage (“Cash-and-Carry”) strategy and compute the arbitrage profit.
A portfolio of derivatives on a stock has a delta of 2400 and a gamma of –100. An option on the stock with a delta of 0.6 and a gamma of 0.04 can be traded. What position in the option creates a portfolio that is gamma neutral? Give size of position ..
What is the agency problem between stockholders and managers and describe the data used by the researcher in the analysis.
What is the appropriate cost for retained earnings in determining the firm's cost of capital?
Kiedis Corp. has interest bearing debt with a market value of $75.9 million. The company also has 1.6 million shares that sell for $26 per share. What is the debt–equity ratio for this company based on market values?
In early 2006 Giant Inc's management was considering making an offer to buy Micro Corporation. Micro's projected operating income (EBIT) for 2006 was $30 million, but Giant believes that if the two firms were merged, it could consolidate some operati..
Calculating Future Values. You have just made your first $5,000 contribution to your individual retirement account. Assuming you earn a 10.1 percent rate of return and make no additional contributions, what will your account be worth when you retire ..
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