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A driver entering into a car lease agreement can obtain the right to buy the car in 4 years for $10,000.
The current value of the car is $30,000. The value of the car, S, is expected to follow the process is a Wiener process.
The market price of risk for the car price is estimated to be - 0:1. What is the value of the option? Assume that the risk-free rate for all maturities is 6%.
Suppose a risk averse investor can choose a portfolio consisting of 2 assets with independently distributed returns, both of which have identical means (r1=r2) and identical variances.
A firm in the third year of depreciating its only asset, which originally cost $180,000 and has a 5-year MACRS recovery period, has gathered the following data relative to the current year s operations.
If the investor also purchases the put (ie. Constructs a protective put), what is the combined cash outflow. What is the maximum potential loss and maximum potential profit from this protective put
Prior to reporting this income statement, the company wants to determine its annual dividend. The company has 340,000 shares of stock outstanding, and its stock trades at $54 per share.
To finance the new venture two plans have been proposed. Plan A is an all common equity structure in which $2.3 million dollars would be raised by selling 86,000 shares of common stock.
Suppose the historical average annual return for the asset was 7.3 percent and the standard deviation was 8.4 percent. What is the probability that your return on this asset will be less than -4.5 percent in a given year
At Node 6, what is the restricted problem Pk+1 (here k = 1)?- What is Tk+1, and what is the resulting no good? Do the same analysis at Node 7, where k = 2.
Assume management is unsure about the $110,000 cost savings - this figure could deviate by plus 20%. Calculate the NPV over the five-year period. Calculate the NPV over the five-year period
The current level of the index is 400, the risk-free rate is 6% per annum, the dividend yield on the index is 4% per annum, and the volatility of the index is 20%. Use DerivaGem to value the option.
An oil company's resources are being depleted and known reserves are becoming scarcer. As a result, the company's earnings and dividends are declining at a rate of 3% each year.
- what is working capital management?- how does a company manage and measure liquidity?- how does a company handle
Compare this hypothetical interest rate path to the actual path of rates. - Draw rough graphs comparing the likely paths of these variables to the paths they actually followed.
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