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Use the Black-Scholes formula to solve these problems: 1. Price a one year European call option with strike price 32, written on a $30 stock. Volatility is 12%. The stock will pay a dividend in 2 months time, and then again in 8 months time, each of $3. Interest rates are 4%. 2. Now suppose that the option in the previous question was American. Use Black’s approximation to price the option.
Briefly explain the problem of multiple IRRs and when this situation could occur. How does the price of a call vary with interest rates?
A firm has a market value equal to its book value. Currently, the firm has excess cash of $700 and other assets of $7,000. Equity is worth $7,700. The firm has 550 shares of stock outstanding and net income of $900. What will the new earnings per sha..
Explain the characteristics of a line of credit. What is it about these loans that make them by far the most popular type of short-term credit? When the economy is growing at a slow pace, it puts a damper on production and sales. This is due to the f..
it pertains to a wealth manager's ability to construct and manage an efficient investment portfolio
Angela, age 14, contracts to purchase medicine from the pharmacy. She and the pharmacist both know that she needs this medicine to live and that it's not being provided to her by anyone else. Which of the following is true? Angela can avoid the contr..
The investment asset class with the most risk over the past 70 years has been? Which of the following IS NOT a supplier of health policies?
Your company is considering a new project that will require $945,000 of new equipment at the start of the project. The equipment will have a depreciable life of 10 years and will be depreciated to a book value of $145,000 using straight-line deprecia..
Howell Petroleum is considering a new project that complements its existing business. The machine required for the project costs $3.81 million. The marketing department predicts that sales related to the project will be $2.51 million per year for the..
The school you would like to attend costs $100,000. To help finance your education, you need to choose whether or not to sell your 1,000 shares of Apple stock, 1,000 EE Savings Bonds (with $100 denominations and 4.25% coupon rate) that are five years..
Federal deposit insurance used to cover a maximum of $ 40,000 per eligible account. It was later raised to $ 100,000 per account and is now $ 250,000 per eligible account. What cost and/ or risk does this present to the FDIC?
KatyDid Clothes has a $170 million (face value) 20 year bond issue selling for 104 percent of par that carries a coupon rate of 13 percent, paid semi-annually. What would be KatyDid's before tax component cost of debt?
The bonds are selling at 99% of face value. The company’s tax rate is 34%. What is Jake’s weighted average cost of capital?
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