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Suppose a security has a current price of $15.00, and Investor A expects the security price to increase by 10% in one year with 60% probability or decrease by 5% in one year with 40% probability. Investor B agrees with Investor A’s values of the future prices but feels that the likelihood of either future price occurring is 50%. Assuming a 3% annual risk-free rate, what is the price of a one-year call option that has a strike price of $15.00 (assuming the call can only be exercised at maturity) for each of these investors? Do the differing probabilities assigned by these investors affect the price of the call option?
Expected Return If a company's current stock price is $26.40 and it is likely to pay a $2.15 dividend next year. Since analysts estimate the company will have a 14% growth rate, what is its expected return?
Next Gen has an inventory turnover rate of 12, an accounts payable period of 45 days, What is the length of the cash cycle?
According to the expectations theory of interest rates, what would you expect the four-year Treasury bond rate to be one year from now?
Discuss the motives for capital budgeting decision. What is the term structure of interest rates?
Compare nominal interest versus real interest rates using US Treasury rates on 10 year notes;
What risk does the difference between the 7.10% dollar interest and 3.25% LIBOR reflect? What risk does the difference between the rate on 90-day pesos and 90-day dollar deposits by Argentine banks reflect?
Due to a recession, expected inflation this year is only 2.25%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 2.25%. Assume that expectations theory holds and the real risk-free rate is r* = 3.5%...
If the stock sells for $38 per share, what is your best estimate of the company’s cost of equity?
Why might a non influential stock investment be perceived as a negative signal about the prospects of a company?
Discuss 5 key takeaways from Managerial Finance class
Assume that Anderson Animations Corporation generates annual sales of $1,875,000 using total assets of $500,000, It has an operating profit margin (EBIT/sales) of 45%, a tax rate of 35%, and 100,000 shares of common stock outstanding. What is the fir..
Calculate the project's coefficient of variation. (Hint: Use the expected NPV.) Squared dev. Prob. NPV NPVi - E(NPV) Squared deviation times probability 0.24 $6,289.81 $5,829 $ $ 0.24 -$2,390.74 -$2,852 $ $ 0.32 -$1,233.33 -$1,694 $ $ 0.20 -$ 400.00 ..
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