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Suppose that the put option in the previous problem is trading at $3 per contract. As you can verify, this means that there is an arbitrage opportunity. Describe carefully the trades that you would need to make to take advantage of this opportunity—that is, what to buy, sell, or write and how much to borrow or lend.
A Treasury bond that matures in 10 years has a yield of 4.75%. A 10-year corporate bond has a yield of 7.5%. Assume that the liquidity premium on the corporate bond is 0.7%. What is the default risk premium on the corporate bond?
You have won the Lottery! The state has offered you three payment options – a) $1 million today tax free; b) $1.5 million a the end of year 2 taxed at 20%; c) $1 million at the end of year 2, and $1 million at the end of year 4 with both payments tax..
Ted Jones, the Surgery Unit Director, is about to choose his strategy for creating a capital expenditure funding proposal for the coming year. Ted’s unit needs more room. What should Ted decide to ask for? How should he go about crafting a strategy t..
John Smith is a wealthy activist investor who has a healthy interest in seeing companies in which he has an interest perform well. In general, he is more concerned about maintaining control over the companies he invests in (by having a majority of vo..
What is the value of the depreciation tax shield in year 2 of the project? What is the amount of the after-tax salvage value of the equipment?
Jane buys furniture at the value of R10000. She lends the money on the 1st of February at a financial institute. Determine the total value that has to be paid back on 1July 2015 and How many months will it take Jane to pay the loan back.
Expiration dates in the option market
The project selection method most consistent with the goal of firm value maximization is:
You placed $1,736 in a savings account today that earns an annual interest rate of 9 percent compounded annually
Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land six years ago for $5.2 million in anticipation of using it as a warehouse and distribution site, but the comp..
A hedge fund charges 2 plus 20%. Investors want a return after fees of 20%. How much does the hedge fund have to earn, before fees, to provide invetors with this return? Assume that the incentive fee is paid on the net return after management fees ha..
Find an example of a restatement that did not cause a substantial drop in a company’s stock price and was reasonably well received by the public.
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