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A stock price is currently €50. Over each of the next two three-month periods it is expected to go up by 6% or down by 5%. The risk-free interest rate is 5% with continuous compounding.
a) What is the value of a six-month European put option with a strike price of €51?
b) If the corresponding put option were American, would it ever be optimal to exercise it early at any of the nodes on the binomial tree?
You have $50,000 in savings for retirement in an investment earning 5% annually. You aspire to have $1,000,000 in savings when you retire. Assuming you add no more to your savings, how many years will it take you to reach your goal?
Willow Brook National Bank operates a drive-up teller window that allows customers to complete bank transactions without getting out of their cars. What is the mean or expected number of customers that will arrive in a five-minute period? What is the..
What are the after-tax cash flows for the company?
Suppose investors in Proctor and Gamble have a 7% cost of equity. Based on Analysts’ forecasts you expect Proctor and Gamble to have earnings per share of $3.80 in one year and earnings per share of $4.20 in two years. After two years you expect retu..
An otherwise identical but levered firm has $25 million in debt. Under the MM zero-tax model, what is the value of the levered firm?
A company is evaluating the possible replacement of equipment. New equipment would cost $92,325, and sales tax on the purchase would be 6%. Both the purchase price and sales tax would be capitalized. What is the initial cash outlay necessary to repla..
Would you consider equity financing in the Brazilian stock exchange?
Bruce & Co. expects its EBIT to be $75,000 every year forever. The company can borrow at 12 percent. The company currently has no debt, its cost of equity is 15 percent, and the tax rate is 35 percent. What is the cost of equity after recapitalizatio..
Constant Growth Valuation Woidtke Manufacturing's stock currently sells for $33 a share. The stock just paid a dividend of $3.50 a share (i.e., D0 = $3.50), and the dividend is expected to grow forever at a constant rate of 6% a year. What stock pric..
Calculate corporate bonds’ default risk premium. Calculate corporate bonds’ liquidity risk premium.
You are considering the purchase of a share of Alfa Growth, Inc. common stock.
what would be the new cash conversion cycle in dollars and days? How much cash would you generate?
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