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Question 1: Assume Koco Ltd current stock price is $70. The American one-year call option on the stock is trading at $20 with strike price of $70. If the one-year rate of interest is 10% p.a. (continuously compounding), is the call price free from arbitrage, assuming that the stock pays no dividends? What if the stock pays a dividend of $5 in one year?
Question 2: The current price of a non-dividend paying stock is $50. Use a two-step tree to value an American put option on the stock with a strike price of $48 that expires in 12 months. Each step is 6 months, the risk free rate is 5% per annum (continuously compounding), and the volatility is 20%. What is the option price? Show work in detail and use a tree diagram (Use 4 decimal places).
Question 3: Two firms X and Y are able to borrow funds as follows:
Firm A: Fixed-rate funding at 4% and floating rate at Libor-1%.
Firm B: Fixed-rate funding at 5% and floating rate at Libor+1%.
Assume A prefers fixed rate and B prefers floating rate. Show how these two firms can both obtain cheaper financing using a swap. What swap strategy would you suggest to the two firms if you were an unbiased advisor? What is the net cost to each party in the swap? Show your work in detail.
the housekeeping services department of r clinic a multispecialty practice in cc had 165105 in direct costs during last
What balance sheet account changes might you expect to find for a company that must rely on sources other than operations to fund its cash outflows?
Assume that the daily volatilities of both assets are 1% and that the coefficient of correlation between their returns is 0.3. What is the 5-day 99% value at risk for the portfolio?
Compute the company's current ratio, its debt ratio, its profit margin, and two other ratios you deem relevant to the understanding of the company as a whole.
Finally, Dr. Jones compared the activity level for the high-sugar group with the activity level for the low-sugar group. Explain why Dr. Jones' study is not an example of the experimental research strategy.
a) What is its yield to maturity? b) What will the yield to maturity be if the price falls to $725?
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.
Use information in the industry profile overview and other scholarly sources as needed. The SWOT analysis should include each of the following:
What factors do you feel are necessary for international governance of globalization. Is there one or more institutions that you feel are important to regulate it
What is the WACC for Coach Inc.? Make sure that the analysis carefully explains the cost of each of the components of the capital structure.
A firm as a total dept of $1500 and a dept-equity ratio of .40. What is the value of the total assets?
A US-based firm expects to receive a payment of 500,000 euros at t = 1 and expects to make a payment of 300,000 euros at t = 2. (i) How would you hedge these exposures if hedging entailed no cost?
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