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St. Johns Inc. stock is currently selling for $25 and has a volatility of 25%. The 7-month risk-free rate is 3% with continuous compounding. Use a 7-step binomial tree to answer these questions.
a. Price a 7-month up-and-out call option with a strike of $26 and a barrier of $33
b. Price a 7-month up-and-in call option with a strike of $26 and a barrier of $33
c. Price a 7-month vanilla call option with a strike of $26
d. What is the relationship to the price of the three options?
The finance department of a large corporation has evaluated a possible capital project using the NPV method, the Payback Method, and the IRR method. Assuming the data is correct, which method will most likely provide the most accurate decisions and w..
what are the dollar returns?
Flipagram’s funding has come from venture capitalists. A TIPS bond would have low duration. For most venture capital investments debt is an important source of funding.
Emmy is analyzing a two-stock portfolio that consists of a utility stock and a commodity stock.
Suppose that Lisa Emerson owns a share of Zytex Chemical stock, which is worth $100 per share.- Plot the payoff diagram for Lisa's new portfolio and explain how it relates to this chapter's Opening Focus.
A company believes it can sell 5,100,000 of its proposed new optical mouse at a price of $11.00 each. There will be $8,000,000 in fixed costs associated with the mouse. If the company desires to make a profit $2,000,000 on the mouse, what is the targ..
The market value of the equity of Thompson, Inc., is $640,000. The balance sheet shows $40,000 in cash and $207,500 in debt, while the income statement has EBIT of $96,500 and a total of $148,500 in depreciation and amortization. What is the enterpri..
What are some important considerations when deciding to contribute to an employee sponsored 401K plan? What are some key advantages of this plan and how do they compare to a traditional individual retirement plan (IRA)?
Assume Gillette Corp will pay an annual dividend of $0.65 one year from now. Analysts expect this dividend to grow at 11.5% per year thereafter until the 5th year. Thereafter, growth will level off at 2.1% per year. According to the dividend-discount..
In a two-period CRR model with r =1% per period, S(0)=100, u =1.02, and d =0.98, consider an option that expires after two periods and pays the value of the squared stock price, S2(t), if the stock price S(t) is higher than $100.00 when the option is..
Until the company has been incorporated it cannot contract or do any other act. Critically explain your reasoning in a clear and cogent fashion.
A 20-year zero coupon bond has a $1,000 face value, a required rate of return of 5 percent, and semiannually compounding. What is this bond worth today?
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