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Super Bank purchases a $100 zero-coupon bond with 2 years to maturity at $80,44. This means YTM = 11,5%. Market yield on 1-year bonds is 10% and forecast for next year's 1-year rate is that rates will rise to either 13,82% (scenario A) or 12.18% (Scenario B). The two scenarios are equally probable. To limit their risks, Super Bank decides to buy an European put on the bond with strike price $88,60 and maturity of 1 year from now.
• If Super Bank need to sell the bond after 1 year from now what are the two possible bond price under each of the scenarios?
• What is the expected price of the bond after 1 year from now?
• What is the maximum value of the put 1 year from now, given only the two scenarios are possible?
• What is the current value of the put (today)? (accuracy of $0,01 for all tasks in Question I)
Maxwell Furniture Center had accounts receivable of $20,000 at the beginning of the year and $54,000 at year-end. Revenue for the year totaled $116,000.
Explain the logic behind this principle. Given this relationship, do you believe it is currently a good time to buy bonds? Why or why not?
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Williams Oil Company had a return on stockholders’ equity of 18 percent during 2010. Its total asset turnover was 1.0 times, and its equity multiplier was 2.0 times. Calculate the company’s net profit margin.
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