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Assume that there is a forward market for a commodity. The forward price of the commodity is $45. The contract expires in one year. The riskfree rate is 10 percent. Now, six months later, the spot price is $52. What is the forward contract worth at this time?
Explain why this is the correct value of the forward contract in six months even though the contract does not have a liquid market like a futures contract.
The next dividend payment by Dizzle, Inc., will be $3.15 per share. The dividends are anticipated to maintain a growth rate of 6.5 percent, forever. Assume the stock currently sells for $49.90 per share. What is the dividend yield? What is the expect..
You would like to purchase a new car and two salesmen are competing for your business. The list price of the car you want to buy is $10,000. With a discount rate of 4% compounded annually, what is the value today of purchasing the car if you take the..
Compute the payback, internal rate of return (IRR), and net present value (NPV) of all four alternatives based on cash flow. Use 10% for the cost of capital in your calculations. For the payback method, merely indicate the year in which the cash flow..
What is the present value of $3,225 per year, at a discount rate of 7 percent, if the first payment is received 8 years from now and the last payment is received 21 years from now?
Suppose the spot rates for 1 and 2 years are s1=6.3% and s2=6.9% with annual compounding.- What is the forward rate, f1, 2 assuming annual compounding?
Zantel Inc. has current assets of $4,700, net fixed assets of $24,300, short-term debt of $1,000, total current liabilities (including short-term debt) of $4,100, and long-term debt of $14,000. What is the value of Zantel’s total equity on balance sh..
Crackle and Pop Telephone Company is considering an upgrade to their current call-waiting equipment. Their existing hardware was purchased 3 years ago for $150,000, has been depreciated straight line over a 5-year useful life. should the replacement..
The exercise price of the options is $101 per share, all options are European and the stock does not pay any dividend. The call price is $12 per share and the put price is $5 per share. Both options mature in 1 year. Finally the annual rate of intere..
Consider the following situation: a firm based in the U.S. opens two storefronts in a Chinese town. The area has several million people. The storefronts are quite large and offer local products as well as imports from other countries. How would the U..
A local dental practice decides to run a Groupon campaign. The campaign offered $345 worth of dental services (such as teeth whitening) for $140. For the total campaign, 250 coupons were sold. Calculate the Groupon campaign profit/loss
BNM Corporation is a consulting company specializing in R programming and advanced Excel applications. Analysts project the following free cash flows (FCFs) during the next 3 years: -$10.0 million at the end of Year 1, $14 million at the end of year ..
Suppose you want to hedge a $370 million bond portfolio with a duration of 7.7 years using 10-year Treasury note futures with a duration of 4.7 years, a futures price of 107, and 99 days to expiration. The multiplier on Treasury note futures is $100,..
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