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Suppose that the premium on a European put option, p = $5. The time to maturity, T = 1 year. The strike price is $22. The stock price of the underlying common stock is $14 today. The risk-free interest rate is 10% per annum. The stock does not pay dividends.
1- Observe that there is an arbitrage opportunity.
2- What the trader would do to make a profit?
The South Seas Navigation Company is considering buying new sextants for its celestial navigation school. The sextants cost $34,000 and are expected to generate annual net cash flows before taxes of $7,500 per year for 9 years. Calculate the initial ..
Coalition tactics
To the closest year, how long will it take a $200 investment to double if it earns 7% interest? How long will it take if the investment earns 18 percent? Please show your work, which includes formula and steps to show how you got this answer.
Ron and Mary are investors and they will be retiring in the next 5 years. They have a conservative risk tolerance. Which asset allocation would most fit their retirement portfolio needs, and why? A) 90% equities and 10% fixed income B) 50% equities a..
Changes in Growth and Stock Valuation Consider a firm that had been priced using a 8 percent growth rate and a 12 percent required rate. The firm recently paid a $2.00 dividend. The firm has just announced that because of a new joint venture, it will..
Carson Corporation stock sells for $77 per share, and you've decided to purchase as many shares as you possibly can. You have $43,000 available to invest. What is the maximum number of shares you can buy if the initial margin is 60 percent?
saven travel corporation is considering several investment opportunities in order to diversify its operations. mr.
Marie Corp. has $1500 in debt outstanding and $2800 in common stock (and no preferred stock). Its marginal tax rate is 40%. Marie's bonds have a YTM of 7.00%. The current stock price (Po) is $40. Next year's dividend is expected to be $2.60, and it i..
What additional assumptions (to the main three) are important when applying the CAPM and what are the underlying strengths and weaknesses of this application? Discuss the reliability of the model and give examples in your explanation.
An investor is considering investing for a five-year period using these two alternatives: (1) purchase a 5-year security, or (2) purchase a one-year security and “rolling over” into successive one-year securities over the next 5 years. According to t..
To finance some manufacturing tools it needs for the next 3 years, Waldrop Corporation is considering a leasing arrangement. The tools will be obsolete and worthless after 3 years. The firm will depreciate the cost of the tools on a straight-line bas..
Suppose you borrow $8000 when financing a coffee shop which is valued at $30000. Assume that the unlevered cost equity of the coffee shop is 15% and that the cost of debt is valued at 5%. What should be the cost of equity of your firm?
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