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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.
What is? Pelamed's 2012 net? income? What is the amount of? Pelamed's interest tax shield in? 2012?
Suppose that in 2013, Global Conglomerate Corporation (Global) launches an aggressive marketing campaign that boosts sales by 20%. However, their operating margin falls from 5.7% to 4.4% suppose that they have no other income, interest expenses are u..
You are a manager in a fictitious company of your choice. Your director has asked you to explain to the department staff the different types of budgets and techniques in order to provide an overall understanding. What are the various kinds of budgets..
You are evaluating a proposed expansion of an existing subsidiary located in Switzerland. The cost of the expansion would be SF 21 million. The cash flows from the project would be SF 5.5 million per year for the next five years. What is the required..
Teddy Corp is considering acquiring Daniels Company. Daniels has a capital structure consisting of $5 million (market value) in 11% bonds and $10 million (market value) of common stock. Calculate the current WACC for the Daniels Company. Calculate th..
To pay for your education you have taken out $28,000 in student loans. If you make monthly payments over 13 years at 6% compounded monthly, how much are your monthly student loan payments?
Does the move to providing services by companies like IBM, HP, Xerox, and Dell reflect market maturity for the computer hardware and software industries?
U.S. Telephone Cellular sells phones for $100. The unit variable cost per phone is $50 plus a selling commission of 10% (based on the unit sales price per phone). Fixed manufacturing costs total $1,040 per month, while fixed selling and administrativ..
Which stock if added will increase the risk of the portfolio overall more and why?
Silmon Corporation makes a product with the following standard costs: Standard Quantity or Hours Standard Price or Rate Direct materials 5.9 grams $ 8.00 per gram Direct labor 0.5 hours $ 15.00 per hour. Compute the following variances for raw materi..
A convertible bond has a 6.5 percent coupon, paid semiannually, and will mature in 10 years. If the bond were not convertible, it would be priced to yield 5.5 percent. The conversion ratio on the bond is 25 and the stock is currently selling for $51 ..
You are interested in buying a stock that has a price of $42. You have projected that next year there is: a 10% probability the stock will equal $1, a 20% probability the stock will equal $31, a 30% probability the stock will equal $43, a 30% probabi..
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