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You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $1, 270,000. Over the past five years, the price of land in the area has increased 7 percent per year, with an annual standard deviation of 33 percent. You have approached a buyer and would like the option to sell the land in 12 months for $1, 420,000. The risk-free rate of interest is 5 percent per year, compounded continuously.
What is the price of the put option necessary to guarantee your sales price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago for $1.35 million in anticipation of using it as a..
Two sisters each open IRAs in 2011 and plan to invest $3,000 per year for the next 30 years. Mary makes her first deposit on January 1, 2011, and will make all future deposits on the first day of the year. Jane makes her first deposit on December 31,..
Suppose you purchased 1,000 shares of Pan Am Airlines at the beginning of the year for $22.99. By the end of the year, the stock price had appreciated to $26.57. At the end of the year, Pan Am paid a dividend of $0.56 per share. Calculate the dividen..
Do you think the one-year forward rate would underestimate, overestimate, or be an unbiased estimate of the future spot rate in one year? Explain.
Randal Flapjack is a retired short-order cook living on a fixed income in the state of Utopia where all financial markets are perfectly efficient. What is Sugarcooky's current price? What will be the value of his remaining shares at the end of a year..
Investment banks will oftentimes "split" the interest and principal payments on US government bonds into two parts and sell each part separately. Consider a vanilla government bond with 30 years to maturity, a coupon rate of 10 percent, a face value ..
An asset manager has conducted an extensive econometric study and proposes a forecasting model. What type of forward transaction would you conduct to capitalize on your forecast? Explain. If everyone were using your model and following your strateg..
You have been hired to evaluate for appraisal a parking garage with 196 spaces. Each space rents for $85 per month or $5 per day (both values are for weekday parking only). There are eight holidays (assume they are weekdays) per year that parking is ..
When it comes to foreign exchange derivatives. There is little opportunity for speculators to make money by using currency futures contracts.
The Dahlia Company has net income of $157,850. There are currently 28.65 days’ sales in receivables. Total assets are $846,000, total receivables are $147,100, and the debt–equity ratio is .35. What is the company’s profit margin? What is the company..
Compute the cost of capital for the firm for the following: currently bonds with a similar credit rating and maturity as the firm's oustanding debt are selling to yield 8.35 percent while the borrowing firm's corporate tax rate is 34 percent.
Erin is considering investing in a new plant that is expected to bring in $1,000,000 in revenues per annum provided that it is adequately maintained. Calculate the present value of revenues and the present value of maintenance costs. (Hint: you first..
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