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Suppose that a non-dividend paying stock is trading at $80 and the risk-free rate is 4.0% (continuous compounding). Consider two American call options with two-months to expiration – one with a strike price of $100 and another with a strike price of $60. The value of the $100 European call option is $0.50, and the value of the $60 European call option is $20.75. There also exist corresponding American put options.
a. Should the $60 American call option be exercised today? What about the $100 American call option?
b. Should the $60 American put option be exercised today? What about the $100 American put option?
Suppose the Federal Reserve purchases $10 billion worth of foreign currency in exchange for deposit accounts at the Federal Reserve. Show the changes that result from this transaction on the Fed’s balance sheet
Assume that Hampshire Co. has net payables of 200,000 Mexican pesos in 180 days. The mexi can interest rate is 7% over 180 days, and the spot rate of the Mexican peso is $.10. Suggest how the U.S. firm could implement a money market hedge. Be precise..
Discuss whether the cost analysis or price analysis should be a key factor to determine whether the winning contractor is qualified and capable of doing the work. Provide and actual or theoretical example.
Ace Software, Inc. is contemplating replacing some existing equipment with some new hardware. The existing equipment, carried on the books at $800, is being depreciated using the straight-line method to a salvage value of $80 over its remaining life ..
Crisp Cookware's common stock is expected to pay a dividend of $2 a share at the end of this year (D1 = $2.00); its beta is 1.20; the risk-free rate is 5%; and the market risk premium is 6%. The dividend is expected to grow at some constant rate g, a..
What is the definition of the term agency problem?
Analyze the financial statement by computing the most significant financial ratios like: Liquidity Ratios, Asset Management Ratios, Profitability ratios, Debt Management Ratios, and Leverage Ratios.
An investment of $83 generates after-tax cash flows of $44.00 in Year 1, $72.00 in Year 2, and $127.00 in Year 3. The required rate of return is 20 percent. The net present value is what?
You purchase a Reit for $50. It distributes $3 consisting of $1 in income, $0.50 in long-term capital gains, $0.30 in short-term capital gains, and $1.20 in return of capital. After a yr., you sell the stock for $56.00 if you are in the 30 % income b..
A small furniture manufacturer produces tables and chairs. Each product must go through three stages of the manufacturing process: assembly, finishing, and inspection. Each table requires 3 hours of assembly, 2 hours of finishing, and 1.5 hour of ins..
The going rate on student loans is quoted as 8 percent APR. The terms of the loans call for monthly payments. (Interests are compounding every month.) What is the effective annual rate (EAR) on such a student loan?
How long would it take her to achieve the emergency fund goal above if she currently has $18,500 saved, invests $300 per month, and earns an annual percentage yield or APY of 4.25% after taxes in her money market mutual fund.
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