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A stock model has parameters u = 2.0, d = 0.5, S0 = 16. A European call option, expiring at T = 4, has strike price X = 20. The interest rate is r = 0.1. Price this option at t = 0 using the chaining method.
Outlet has 17,500 shares of stock outstanding with a par value of $1 per share. The current market value of the firm is $1,280,000. The balance sheet shows a balance of $142,000 in the capital in excess of par value account and retained earnings of $..
A call option is currently selling for $6.40. It has a strike price of $55 and six months to maturity. A put option with the same strike price sells for $7.40. The risk-free rate is 5.3 percent, and the stock will pay a dividend of $2.70 in three mon..
Fairfax Paint operates stores in Virginia. The firm is evaluating the Vienna project, which would involve opening a new store in Vienna. What is the relevant operating cash flow (OCF) for year 1 of the Vienna project that Fairfax Paint should use in ..
The treasurer of a large corporation wants to invest $44 million in excess short-term cash in a particular money market investment. The prospectus quotes the instrument at a true yield of 3.56 percent; that is, the EAR for this investment is 3.56 per..
This week's question focuses on cost allocation. A major manufacturer decided to put one of its divisions up for sale because managerial information showed the components produced by this division is losing money. Why do you think the division was pr..
Moby Dick Corporation has sales of $4,635,480 income tax of $400,651; the selling general and administrative expenses of $294,228; depreciation of $395,852; cost of goods of $2,543,550; and interest expense of $188,723. Calculate the amount of the fi..
The current level of the S&P 500 is 1,500. The dividend yield on the S&P 500 is 7%. The risk-free interest rate is 8%. The futures price quote for a contract on the S&P 500 due to expire 6 months from now should be __________.
Calculate the expected rate of return for each stock separately and calculate the expected rate of return for the portfolio.
You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.22, and the total portfolio is exactly as risky as the market, what must the beta be for the other stock in your portfolio?
A consultancy calculates that it can supply crude oil assaying services to a small oil producer for $120,000 per year for five years. There are some upfront costs the consultancy will require the oil producer to absorb. What is the maximum that these..
Suppose there is an interest rate spread of 1% between the United States and South Africa (S.A.). The yield on a one-year U.S. Treasury security is 5% (rd = 5%) while the yield on a comparable South African security is 6% (rF = 6%). You wish to inves..
All of the following are features of bonds except
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