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We consider a Brownian motion (Wt)t?[0,1].
(1) Compute the expectation and the variance of W1/2 + W1.
(2) We consider a Black-Scholes model such that the bond price is given by Bt= e.1t and the stock price is given by St = 100e.2t+.5Wt . What is the initial stock price?
What is the interest rate? What is the volatility?
(3) With the help of a table of normal distribution, give an approximation (with error at most 0.01) of the probability that the stock price is larger at time 1 than it is a at time 0.
What is the decrease in the value of the company due to expected bankruptcy costs?
Calculate the initial outlay of the project. Determine the terminal year (in year 4) after-tax non-operating cash flow.
A firm wishes to maintain a growth rate of 8 percent and a dividend payout ratio of 52 percent. The ratio of total assets to sales is constant at 1.1, and the profit margin is 9.1 percent. If the firm also wishes to maintain a constant debt-equity ra..
Pybus, Inc., is considering issuing bonds that will mature in 20 years with an 8 percent annual coupon rate. Their par value will be $1000, and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds and, if it does, t..
The Timberlake-Jackson Wardrobe Co. has 10.8 percent coupon bonds on the market with eight years left to maturity. The bonds make annual payments and have a par value of $1,000. If the bonds currently sell for $1,129.70, what is the YTM?
Calculate Foust's cost of common equity. Calculate the cost of equity as rs = D1/P0 + g.
Suppose the average return on an asset is 12.1 percent and the standard deviation is 21.7 percent. Further assume that the returns are normally distributed. Use the NORMDIST function in Excel to determine the probability that in any given year you wi..
The Floral Shoppe and Maggie's Flowers are all-equity firms. What is the net present value of acquiring The Floral Shoppe to Maggie's Flowers?
Determine the rate of return on invested capital value for the given cash flow series.
calculate the weighted average cost for the Han Corp.
The weaver watch company sells watches for $25, fixed costs are $140,000, and variable costs are $15 per watch. What is the firm's gain or loss at sales of 8,000 watches? 18,000 watches? What is the break-even point?
Simple interest versus compound interest. First city bank pays 6 percent simple interest on its savings account balances, whereas second city bank pays 6 percent interest compounded annually. If you made a deposit of $7,500 in each bank, how much mor..
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