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A two-year European call option on a dividend-paying stock is currently selling for $10. The stock price is $84, the strike price is $80, and a present value of all future expected dividends is $2. If the risk-free interest rate is 8% per annum for all maturities, continuously compounded, what strategy should be taken to exploit arbitrage opportunity, if there is any?
sell the call option and short the stock
buy the call option and buy the stock
sell the call option and buy the stock
buy the call option and short the stock
Your portfolio is 330 shares of Davis, Inc. The stock currently sells for $103 per share. The company has announced a dividend of $3.40 per share with an ex-dividend date of April 19. Assuming no taxes, what is your portfolio value as of April 19?
Consider a project to supply 105 million postage stamps per year to the U.S. Postal Service for the next five years. You have an idle parcel of land available that cost $1,950,000 five years ago; if the land were sold today, it would net you $2,150,0..
If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7%, paid semiannually, and has a yield to maturity (YTM) of 4.2%, what should be its price in the bond market (ie, PV)?
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Why do businesses that have been spun-off from their parent often immediately put antitakeover defences in place?
Preble Company manufactures one product. Its variable manufacturing overhead is applied to production based on direct labor-hours and its standard cost card per unit is as follows: Direct material: 6 pounds at $8.00 per pound $ 48.00 Direct labor: 4 ..
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A company owns $10000 to be paid at times 2, 4, and 6. The company plans the obligation with an investment program that produces cash flows of X at time 1 and Y at time 5. The elective rate of interest is 10%. Determine X and Y. Does this investment ..
Assume that Jose is indifferent between investing in a corporate bond that pays 10% interest and a stock with no growth potential that pays an 8% dividend yield. Assume that the tax rate on dividends is 15%. What is Jose's marginal tax rate?
The premium on a call option on the market index with an exercise price of $50 is $1.30 when originally purchased. After 3 months the position is closed and the index spot price is $52. If interest rates are 0.75 % per month, what is the Call Profit?
Which of the following payments that a business makes is NOT “contractual” ("contractual" means must pay otherwise go bankrupt)?
Suppose that you borrow ?$40,000 at 12?% compounded monthly over six years. Knowing that the12?% represents the market interest? rate, you realize that the monthly payment in actual dollars will be ?$782.01 If the average monthly general inflation ra..
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