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Option Pricing -- Replicating Portfolio
You try to price the call option on XYZ corp. The current stock price of XYZ is $100/share. The risk-free rate is 3%. What is the appropriate price of the 1 year call option of XYZ corp with a strike price of $110 using replicating portfolio approach? You project the stock price of XYZ will either be $100 or $140 in a year. Assume you can borrow or lend money at risk-free rate.
Christine's total monthly expenses typically amount to $1,800.- How much individual disability insurance should Christine purchase?
Your firm is planning to issue preferred stock. The stock is expected to sell for $97.06 a share and will have a $100 par value on which the firm will pay a 14.4 percent dividend. What is the cost of capital to the firm for the preferred stock?
Martin’s Yachts has paid annual dividends of $1.40, $1.75, and $2.00 a share over the past three years, respectively. The company now predicts that it will maintain a constant dividend since its business has leveled off and sales are expected to rema..
Assume that your parents wanted to have $160,000 saved for college by your 18th birthday and they started saving on your first birthday. They saved the same amount each year on your birthday and earned 11.5% per year on their investments. How much wo..
Fama’s Llamas has a weighted average cost of capital of 10.8 percent. The company’s cost of equity is 13 percent, and its pretax cost of debt is 8.8 percent. The tax rate is 38 percent. What is the company’s target debt−equity ratio?
The cost of machinery for a project is $400,000. Expected life of the equipment is 4 years with 10% salvage. Direct labor rate is $30/hr. Production rate is 15parts/hr. Direct Material Cost is $12.37/unit. Use an AEC equation to find how many parts n..
What would be the weights used in the calculation of BetterPie’s WACC?
Suppose an investor purchases one put, with X = $30, and one put, with X = $40, and sells two puts, with X = $35. Draw a payoff diagram for this position.
Assume that the risk-free rate is 5% and the market risk premium is 6%. What is the expected return for the overall stock market? What is the required rate of return on a stock with a beta of 1.2?
What is the present value of $1,200 received at the end of each year for eight years starting in year 4 and ending in year 11 if the discount rate is 10 percent per year? Venture capitalist are like bankers in that they are organized as formal busine..
You have been offered two different salary arrangements. You can have $149,000 per year for the next two years, or you can have $55,000 per year for the next two years, along with a $35,000 signing bonus today. If the interest rate is 6 percent compo..
The ratio of total assets to sales is constant at 1. 4 if firm plan to keep it’s finance the same What profit margin must the firm achieve?
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