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Suppose that copper costs $3 today and the continuously compounded lease rate for copper is 5%. The continuously compounded interest rate is 10%. the copper price in 1 year is uncertain and copper can be stored costlessly.
a. If you short-sell a pound of copper for 1 year, what payment do you have to make to the copper lender? Would it make sense for a financial investor to store copper in equilbrium?
b. Show that the equilibrium forward price is $3.154.
c. In what sense is $3.316 (= 3 x e^.10) a maximum possible forward price?
d. Explain the circumstances in which any price below $3.316 could be the observed forward price, without giving rise to arbitrage. (Be sure to consider the possibility that the least rate may not be 5%.)
Terragon Plastics Inc. is considering an expansion at its manufacturing facility. The equipment would be purchased for $8.5 million. An initial net operating working capital investment equal to 10% of the estimated sales of $15 million in the first y..
You are considering an investment in Roxie's Bed & Breakfast Corp. During the last year, the firm's income statement listed an addition to retained earnings of $12.60 million and common stock dividends of $1.90 million. What is Roxie's Bed & Breakfas..
Looking at the Bernie Madoff ponzi scheme - What drives people to participate in unethical behavior? What regulatory requirements need to be implemented to minimize these behaviors?
The price of a product is $1 a unit. A firm can produce this good with variable costs of $0.50 per unit and total fixed costs of $100. What is the break-even level of output?
1. Evaluate the advantages and disadvantages of the various decision-making tools listed (e.g., regular payback, discounted payback, net present value (NPV), internal rate of return (IRR), and modified internal rate of return).
Pecos Manufacturing has just issued a 15?-year, 11?% coupon interest? rate, ?$1,000?-par bond that pays interest annually.
What is the yield to maturity on this bond? Should you purchase the bond if the yield to maturity on a comparable-risk bond is 6 percent?
ABC Company purchased some new equipment 2 years ago for $143,130. Today, it is selling this equipment for $35,357. What is the aftertax cash flow from this sale if the tax rate is 29 percent? The MACRS allowance percentages are as follows, commencin..
How much will you owe on the credit card if you have not made a payment for 6 months?- How much interest will have accrued?
The following items are components of a traditional balance sheet. How much are the total assets of the firm?
You are evaluating two different silicon wafer milling machines. The Techron I costs $213,000, has a three-year life, and has pretax operating costs of $54,000 per year. The Techron II costs $375,000, has a five-year life, and has pretax operating co..
The next dividend payment by Most Inc. will be $3.35 per share. What is the dividend yield? What is the expected capital gains yield?
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