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Rebecca is interested in purchasing a European call on a hot new stock, Up, Inc. The call has a strike price of $98.00 and expires in 95 days. The current price of Up stock is $115.14, and the stock has a standard deviation of 40% per year. The risk-free interest rate is 6.29% per year. Up stock pays no dividends. Use a 365-day year.
a. Using the Black-Scholes formula, compute the price of the call.
b. Use put-call parity to compute the price of the put with the same strike and expiration date.
a. Using the Black-Scholes formula, compute the price of the call. The price of the call is $ (Round to two decimal places.)
Either machine must be replaced at the end of its life with an equivalent machine. Which is the better machine for the firm? The discount rate is 6% and the tax rate is zero.
Sarah Moore has taken a short position in one Chicago Board of Trade Treasury bond futures contract with a face value of $100,000 at the price of 96-06. The next day, the futures price increases to 96-31. What is Sarah’s net gain/loss for the first d..
You can assume the fund is fully invested by the beginning of year 6, and then realizes 20 percent of its investment capital in each of the following ?ve years. What are the lifetime fees and investment capital for this fund? (Make assumptions for..
What are the major arguments made by credit and marketing professionals for the extension of trade credit? Why are credit departments in banks and major corporations implementing expert systems?
The all equity firm (it has no debt and so pays no interest) has shareholders who require 10% return on their invested capital. All of the firm’s capital is tied up in operating activities. The firm’s ROIC = 16%. Earnings before tax is $100 and the f..
Woidtke Manufacturing's stock currently sells for $28 a share. The stock just paid a dividend of $3.75 a share (i.e., D0 = $3.75), and the dividend is expected to grow forever at a constant rate of 10% a year. What stock price is expected 1 year from..
determine why the company experienced a much higher cost of sales in a specific fiscal year?
Why is capital a more important measure of the size of a securities firm than amount of assets? What other measures would be useful given the diversity of this industry?
What is the projected prepayment amount in month 12? What the total interest received by the issuer in month 12? If instead the WAM of loans at issuance was 178 months (i.e. the loans were seasoned for 2 months before the security was formed), what w..
The real risk-free rate is 2%. Inflation is expected to be 2% this year, 3% next year, and then 4.5% thereafter. The maturity risk premium is estimated to be 0.0006 x (t - 1), where t = number of years to maturity. What is the nominal interest rate o..
The Nelson Company has $1,035,000 in current assets and $450,000 in current liabilities. Its initial inventory level is $360,000, and it will raise funds as additional notes payable and use them to increase inventory. How much can Nelson's short-term..
You need to estimate the value of Flying Vikings Aviation. You have the following forecasts (in millions of dollars) of it profits, and of its future investments in new plant and working capital. Estimate the company's total value. What is the value ..
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