Underlying stock goes bankrupt and stock price falls to zero

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Reference no: EM132060980

1. Estimate the Cap Rate using the BAND OF INVESTMENT Method in order to estimate the value of a Rental Property using a Loan to Value Ratio of 75% for a 25 years Mortgage at fixed annual rate of 6%. The investor’s required return on equity is 13%. According to your calculations, the required Cap Rate is:

a. 7.7%

b. 9.5%

c. 6.0%

d. 9.0%

2. Which derivatives position has zero payoff at maturity (not profit) when the underlying stock goes bankrupt and the stock price falls to zero?

a) Long future

b) Short future

c) Long call

d) Long put

e) Short put

Reference no: EM132060980

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