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The price of a stock is $48. You buy a call option that is $2 out of the money for a cost of $3. At the same time, you sell a put option that is $3 out of the money for $2 and buy a put option that is $10 out of the money for 50c. All options have the same expiry and assume r = 0 (erT = 1).
A) Draw the payoff diagram at expiration. Clearly label (inc. breakeven point(s))
B) What is the maximum upside (gain) and downside (loss)
Yet, they sometimes close the facility later because the cost advantage dissipates. Why do you think the relative cost advantage of these countries is reduced over time?
One More Time Software has 9.4 percent coupon bonds on the market with 19 years to maturity. The bonds make semiannual payments and currently sell for 120.2 percent of par. What is the current yield on the bonds? The effective annual yield?
The last observed dividend for Company Z before today was $2.15. Dividends are growing at a constant rate of 8.5% annually. If the required rate of return on the stock is 12.5%, what will be the total expected dollar capital gain per share on the sto..
Karsted can sell the used equipment today for $7.5 million, and its tax rate is 30%. What is the equipment's after-tax salvage value?
For the following companies, Use 3 methods to calculate relative value of stocks: dividend discount, Gordon model and P/E.
Thatcher Corporation's bonds will mature in 10 years. The bonds have a face value of $1000 and an 8% coupon rate, paid semiannually. The price of the bonds is $1100. The bonds are callable in 5 years at a call price of $1050. What is their yield to m..
Advanced Micro Devices (AMD) interest coverage ratio is 0.6
You must evaluate a proposed spectrometer for the R&D department. The base price is $260,000, and it would cost another $65,000 to modify the equipment for special use by the firm. What is the initial investment outlay for the spectrometer, that is,..
Which of these is the total risk premium? The random-walk hypothesis is associated with which form of market informational efficiency:
Ms. Langley is 30 years old and has begun a retirement plan that permits her to place monthly amounts of $300 into a retirement vehicle, beginning one month from now, for 30 consecutive years. When Ms. Langley reaches her retirement at age 60, she ex..
What amount can USA Corporation deduct for premiums attributable to Ursula? How much must Ursula's widower include in income?
The primary function of financial markets is to:
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