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a) A trader writes (i.e. sells) two calls with strike = $41 costing $5 each. He simultaneously goes long on 3 puts with strike = $45 and costing $7 each. Both expire in 6 months. If the spot price at expiration is $ 43.50 and the interest rate is 6% per annum (continuous), what is the trader's profit or loss?
b) A trader sells three calls with strike = $50 and buys two puts with same expiration but strike = $55.00 Put premium is $2 per option. If the spot price at expiration is $ 52.00, what should the call premium for each option be if he is to break even? Ignore interest effects
c) A refinery buys crude to produce gasoline. The firm needs 3000 barrels of crude to produce gasoline. One barrel of crude produces 0.3 barrels of gasoline. The firm the firm uses crude oil and gasoline futures to hedge its risk. The firm enters into crude futures with a futures price of $ 70 per barrel and gasoline futures at futures price of $ 245 per barrel. When the hedge ends the spot price of crude is $69.25 and that of gasoline is $250 per barrel. What is its profit or loss on the entire futures position?
Fisk Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores. Fisk anticipates sales of 49,000 units per year, an ordering cost of $2 per order, and carrying costs of $1.60 per unit. Wha..
Describe reasons why sales promotion is needed (influence consumer decisions, encourage trial of new products, strengthen brand loyalty, influence consumer behavior)
Upper Crust Bakers just paid an annual dividend of $2.80 a share on its common stock and is expected to increase that dividend by 4 percent per year for the foreseeable future. If the discount rate on Upper Crust is 11.50 percent, what is the current..
Suppose the expected returns and standard deviations of Stocks A and B are E(RA) = 0.09, E(RB) = 0.15, σ(A) = 0.36, and σ(B) = 0.62. Calculate the expected return and standard deviation of a portfolio that is composed of 35 percent A and 65 percent B..
What is the present value of $1,825 per year, at a discount rate of 9 percent, if the first payment is received 8 years from now and the last payment is received 24 years from now?
Planters Bank pays 5 percent simple interest on its savings account balances, whereas Centura Bank pays 5 percent compounded annually. If you made a $12,000 deposit in each bank, how much more money would you earn from your Centura Bank account at th..
ProCor, a biotech firm, forecasted the following growth rates for the next three years: 35 percent, 28 percent, and 22 percent. The company then expects to grow at a constant rate of 9 percent forever. The company paid a dividend of $1.54 last week. ..
Market/Book Ratio Winston Washers's stock price is $75 per share. Winston has $10 billion in total assets. Its balance sheet shows $1 billion in current liabilities, $3 billion in long-term debt, and $6 billion in common equity. It has 550 million sh..
The typical customer keeps an average monthly balance net of float equal to $ 116 in the account and pays a $ 3.25 monthly service charge. The bank must hold 10 percent required reserves against the average balance and thus can invest 90 percent of t..
Nuff Folding Box Company, Inc. is considering purchasing a new gluing machine. The gluing machine costs $50,000 and requires installation costs of $2,500. This outlay would be partially offset by the sale of an existing gluer. What is the tax effect ..
Describe the four perspectives of the balanced scorecard and list one or more strategic objectives for each perspective that are likely to be important for MHB.
Calculate the annual premium by using the table lookup for:
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