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Suppose that the price of a non-dividend-paying stock is $30, its volatility is 25%, and the risk-free rate for all maturities is 4% per annum. Use DerivaGem European binomial with 60 steps to calculate the cost of setting up the following positions. In each case provide a table showing the relationship between profit and final stock price.
a. A bear spread using European call options with strike prices of $25 and $30 and a maturity of one month.
b. A bull spread using European put options with strike prices of $30 and $35 and a maturity of one month.
c. A butterfly spread using European call options with strike prices of $25, $30, and $35 and a maturity of three months.
d. A butterfly spread using European put options with strike prices of $25, $30, and $35 and a maturity of one month.
e. A strangle using options with strike prices of $25 and $35 and a maturity of one month.
Calculate the additional funds needed (AFN) using the percentage of sales method and prepare Year 2015 pro-forma balance sheet. Calculate ABC’s stock price using FCF based valuation model without using computer software like “Excel”.
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The Walgreen Corporation is contemplating a new investment that it plans to finance using one-third debt. The firm can sell new $1000 par value bonds with a 15 year maturity at a price of $950 that carries a coupon interest rate of 12.9 percent that ..
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