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You own 100 shares of Amazon stock (AMZN) and are concerned that the price will go down. You do not want to sell because you have unrecognized capital gains and are in a high tax bracket.
Using the Black-Scholes model with ?std dev = .21, r=.01, t=December 2014 option, K= today's price, and ignoring dividends, answer the following:
(a) On an ongoing basis, what portfolio should you construct to offset any loss on the stock with profit from an option? (Hint: consider the delta of the stock which measures how many shares of stock equals the movements in one option. Using Black-Scholes, delta = N(d1) - 1 for a put option).(b) What is the approximate cost per month of maintaining this hedge indefinitely? (Approximate this using 8 month option price divided by 8)(c) If the stock price moves by $1, what is the change in value of your portfolio (stock plus option)?(d) If the stock price moves by $100, what is the change in value of your portfolio? Why is it different than part (c)?
A firm has sales of $750, total assets of $400, and a debt-equity ratio of 1.50. If the return on equity is 10%, Calculate the firm's net income?
Can you describe these strategies and also the potential costs involved with each action?
What is the difference between GDP and NI? How has NI changed since 2008? What caused these changes?
A restaurant operates with two full-time employees who work eight hours per day. The rest of the employees are part-time employees who are scheduled for four hours shifts.
Assume that you want to purchase a new truck from a local dealership. The dealership is offering 2 percent financing for 4 years. They are also offering a $3,000 cash rebate for an externally financed deal.
You have contracted to buy a $10,000,000 multi-family property with $2,000,000 cash down payment as equity and an $8,000,000 mortgage loan.
Macho Tool Corporation is going public at $50 net per share to the company. There also are founding stockholders that are selling part of their shares at similar value.
Calculate the base-case cash flow and NPV. What is the sensitivity of NPV to changes in the sales figure? Explain what your answer tells you about a 500-unit decrease in projected sales.
Explain what is the value of the firm and explain what will the value be if Corrado converts to 50% debt?
The Wall street Journal reported the following spot and forward rates for Swiss Franc. Assume you executed a 90-day forward contract to exchange 100,000 Swiss francs into United State dollars.
Java Corporation is trying to select the best investment from among four alternatives. Each alternative involves an initial outlay of $100,000. Their cash shows follow: Compute and rank each alternative based upon:
Hunter Petroleum Company paid a $2 dividend last year. The dividend is expected to increase at a constant rate of 5% over the next 3-years. The required rate of return is 12%
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