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You buy a call with a strike price of $60 on a stock that you have shorted at $60 (this is a "protective" call). The call premium is $2.80. a. What is the expiration net profit if the stock price ends at $0,$30,$60,$70, and $1000? b. What is the maximum potential loss from this protective call? c. What is the maximum potential gain from this protective call? d. Find the break even stock price(or prices)
Three put options on a stock have the same expiration date and strike prices of $55, $60, and $65. The option prices are $3, $8, and $12, respectively. How should an arbitrager take advantage of the arbitrage opportunity if it exists? (Hint: Examine ..
The Braziallian real dropped 1.5 percent to 3.5369 per dollar at 12:39 p.m. in Sao Paulo, after the monetary authority sold 88,500 reverse swaps out of 120,000 it offered on Friday, a move that’s equivalent to buying $4,425 billion in the futures mar..
Most sources report alphas and other metrics relative to a standard benchmark, such as the S&P 500. When might this method be an inappropriate comparison?
Hollin Corporation has bonds on the market with 23.5 years to maturity, a YTM of 7 percent, and a current price of $1,051. The bonds make semi-annual payments. What must the coupon rate be on these bonds?
Drongo Corporation's 4-year bonds currently yield 7.4 percent. The real risk-free rate of interest, r*, is 2.7 percent and is assumed to be constant. The maturity risk premium (MRP) is estimated to be 0.1%(t - 1), where t is equal to the time to matu..
You are choosing between two projects. The cash flows for the project are given in the following table ($ million) : What are the IRRS of the two projects? Why do IRR and NPV rank the two projects differently?
Suppose you are still committed to owning a $150,000 Ferrari. If you believe your mutual fund can achieve a 10.25% annual rate of return, and you want to buy the car in 10 years on the day your turn 30, how much must you invest today?
Tapley Dental Supply Company has the following data: Net income: $240 Sales: $10,000 Total assets: $6,000 Debt ratio: 75% TIE ratio: 2.0 Current ratio: 1.2 If Tapley could streamline operations, cut operating costs, and raise net income to $520, with..
In April 2013 a pound of apples cost $1.48, while oranges cost $1.12. Three years earlier the price of apples was only $1.27 a pound and that of oranges was $.98 a pound. a. What was the annual compound rate of growth in the price of apples What was ..
What are the three distinct types of business activity in which companies engage? Assume that you start your own company to rent bicycles in the summer and skis in the winter. Give an example of at least one of each of the three types of business act..
As a consultant to GBH Skiwear, you have been asked to compute the appropriate discount rate to use in the evaluation of the purchase of a new warehouse facility. You have determined the market value of the firm’s current capital structure (which the..
Social, moral, environmental and ethical issues are part of the investment process and cannot be ignored by financial planners / managers. The burden of these costs fall unevenly on different firms. Some of these firms, especially the large companies..
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