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Suppose that instead of our usual pricing scenario, we have a stock whose price will become either its square or its square root at the end of each period; that is, for k > 0, Sk+1 = Sk^2 ; if wk+1 = H ; Sk+1 = sqrt(Sk) ; if wk+1 = T : If the initial price S0 of the stock is $4 per share. and the interest rate is r = 10%, nd the appropriate price (at time 0) for a European-style option, expiring at time t = 2, whose payout is abs(S2 -4). (That is, the payout is always non-negative, and is the dierence between the time-2 value and the original value of the stock.)
You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a common practice with expensive, high-tech equipment). The scanner costs $8,050,000, and it would be depreciated straight-line to zero over fiv..
Risk and Return. We have seen that over long periods of time, stock investments have tended to substantially outperform bond investments. However, it is not at all uncommon to observe investors with long horizons holding entirely bonds. Are such inve..
Thatcher corporation's bonds will mature in 10 years. The bonds have a face value of $1,000 and an 8% coupon rate, paid semi annually. The price of the bonds is $1,100. The bonds are callable in 5 years at a call price of $1,050. What is their yield ..
You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $320,000. The truck falls into the MACRS 10-year class, and it will be sold after 10 years for $57,000. The firm's marginal t..
Why is a minitrial preferred to arbitration?
Suppose we have the following returns for large-company stocks and Treasury bills over a six year period: Year Large Company US Treasury Bill 1 3.89 5.81 2 14.14 2.47 3 19.13 3.70 4 –14.55 7.13 5 –32.04 5.18 6 37.37 6.16 a. Calculate the arithmetic a..
Suppose that an investor is planning to purchase a 9% semi-annual coupon bond selling at par with 10 years to maturity and plans to hold it for 4 years and sell it at an expected yield to maturity of 8.5%. The investor expects that he can reinvest th..
Trust Bankers just paid an annual dividend of $1.5 per share. The expected dividend growth rate is 6.7 percent, the discount rate is 11 percent, and the dividends will last for 19 more years. What is the value of the stock?
how long would you have to wait until you have accumulated enough money to buy the car under annual compounding?
Would the United States gain from the combination of the export subsidy and import tariff? Would Canada? Explain.
If the required return is 15 percent, and the company just paid a dividend of $3.55, what is the current share price?
Companies finance their investment and operating activities with a mixture of bonds and shares.
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