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1. The risk-free rate of interest is 7% per annum with continuous compounding, and the dividend yield on a stock index is 3.2% per annum. The current value of the index is 150. What is the 6-month futures price?
2. Assume that the risk-free interest rate is 9% per annum with continuous compounding and that the dividend yield on a stock index varies throughout the year. In February, May, August, and November, dividends are paid at a rate of 5% per annum. In other months, dividends are paid at a rate of 2% per annum. Suppose that the value of the index on July 31 is 1,300. What is the futures price for a contract deliverable in December 31 of the same year?
A stock had annual returns of 16 percent, 8 percent, -17 percent, and 21 percent for the past four years. Based on this information, what is the 95 percent probability range of returns for any one given year?
Dividend payments to shareholders are different from interest payments to lenders because: a. Dividend payments are more costly to a corporation b. The interest rate is lower than the cost of equity to corporations c. Interest payments, not dividends..
Suppose the real rate is 3.5 percent and the inflation rate is 5.1 percent. What rate would you expect to see on a Treasury bill?
A firm has a capital structure with $100 million in equity and $100 million of debt. The cost of equity capital is 14% and the pretax cost of debt is 8%. If the marginal tax rate of the firm is 30%, compute the weighted average cost of capital of the..
Compute the Net Present Value, Payback Period and the Internal Rates of Return for each alternative - on the basis of your analysis , which of the alternatives would you recommend?
Project Selection Midwest Water Works estimates that its WACC is 10.5%. The company is considering the following capital budgeting projects: Project Size Rate of Return A $1 million 12.0% B 2 million 11.5 C 2 million 11.2 D 2 million 11.0 E 1 million..
A put option on a stock with a current price of $42 has an exercise price of $44. The price of the corresponding call option is $3.60. According to put-call parity, if the effective annual risk-free rate of interest is 6% and there are four months un..
Annual default frequencies are shown. LGD is 40 percent and the risk-free rate is 2.5 percent. What is the implied credit spread on the pool?
You invested $70,000 in a mutual fund at the beginning of the year when the NAV was $38.21. At the end of the year the fund paid $.36 in short-term distributions and $.53 in long-term distributions. If the NAV of the fund at the end of the year was $..
Your firm is considering the following three alternative bank loans for $1,000,000: Assume that you would normally not carry any bank balance that would meet the 20 percent compensating balance requirement. What is the rate of annual interest on each..
The government is considering a proposal to allow even greater accelerated depreciation deductions than those specified by MACRS. For which type of company would the change be more valuable, a company facing a 10% tax rate on one facing a 30% tax rat..
Pettit Printing Company has a total market value of $100 million, consisting of 1 million shares selling for $50 per share and $50 million of 10% perpetual bonds now selling at par. The company's EBIT is $11.06 million, and its tax rate is 25%. What ..
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