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Buying on Margin:
Assume that Duever stock is priced at $80 per share and pays a dividend of $2 per share. An investor purchases the stock on margin, paying $50 per share and borrowing the remainder from the brokerage firm at 12 percent annualized interest.
If, after one year, the stock is sold at a price of $90 per share, what is the return to the investor?
A put option is currently selling for $7.5. It has a strike price of $85 and seven months to maturity. The current stock price is $88. The risk-free rate is 6 percent, and the stock will pay a $2.9 dividend in two months. What is the price of a call ..
How can you apply what you have learned? Look at the financial statements or perform basic research on your current or previous employer.
Dixie Dynamite Company is evaluating two methods of blowing up old buildings for commercial purposes over the next five years. Method one (implosion) is relatively low in risk for this business and will carry a 12 percent discount rate. Which method ..
HoKus Corporation, a boutique clothing company, has asked for your advice on whether to invest $40 million in a new line of loungewear. The investment will yield earnings before interest and taxes of $10 million a year, and any depreciation on the pr..
Determine the Market value of No Leverage, Inc., Market value of High Leverage, Inc. and Present value of the tax shield to High Leverage, Inc.
Sandra is legally responsible for her qualified student loans, but her grandparents make the monthly payments. Sandra is not claimable as anyone's dependent. Who is eligible to claim the deduction for the interest paid on Sandra's student loans?
The average annual return on the Standard and Poor's 500 Index from 1986 to 1995 was 15.8 percent. The average annual T-bill yield during the same period was 5.6 percent. What was the market risk premium during these 10 years?"
Stock R has a beta of 1.1, Stock S has a beta of 0.30, the expected rate of return on an average stock is 12%, and the risk-free rate is 7%. By how much does the required return on the riskier stock exceed the required return on the riskier stock exc..
Most state lotteries in the U.S. give Lottery winners of particularly large prizes the option of taking the total prize as an annuity over several years, usually 10-20, or as a discounted lump sum now. What does this relationship suggest to potential..
You’re trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $11.8 million, which will be depreciated straight-line to zero over its four-year life.
Suppose the Japanese yen exchange rate is ¥110 = $1, and the British pound exchange rate is £1 = $1.55. What is the cross-rate in terms of yen per pound? Suppose the cross-rate is ¥175 = £1. What is the arbitrage profit per dollar?
Compute the price of a 6.5 percent coupon bond with 15 years left to maturity and a market interest rate of 10.8 percent. (Assume interest payments are semiannual.)
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