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A futures price is currently 120. It is known that at the end of three months the price will be either 100 or 140. What is the value of a three-month European call option on the futures with a strike price of 122 if the risk-free interest rate is 5% per annum (continuously compounded)? How would you hedge this option if you sold it? Please show all work and also how you would hedge it.
What is β and why is it important to investors and issuers of stock? Describe the behavior of stocks with βs of greater than one, less than one, and less than zero.
how much would you pay for the stock assuming a cost of equity of 10%.
A 3-year, $1000-face value bond promises to make annual interest payments of $84 at the end of each year. At the end, the principal of $1000 will also be repaid. If investments of similar riskiness yield 7.4%, what is the maximum you would pay for th..
Sandra deposit $27,800 to 15 per cent of compound interest every two months, Calculate the amount after 6 years from the initial deposit of $27,800.
Trico bonds have an annual coupon rate of 15 percent and a par value of $1,000 and will mature in 25 years. if you require a return of 7 percent, what price would you be willing to pay for the bond? what happens if you pay more for the bond? what hap..
In a market, the equilibrium condition is given by the following: Suppose that there is a tax of $1 per unit, and the elasticity of supply is 3 and the elasticity of demand is 2 (in absolute value). How much of the $1 tax is paid by sellers? Which of..
Which of the following is considered as a liability in the balance sheet of a firm?
The company is using Economic Order Quantity model in placing the orders.
Covol industries is developing the relevant cash flows associated with the proposed replacement of an existing machine tool with a new; technologicaly advanced one. Given the following costs related to the proposed project, explain WHY each would be ..
Which of the following statements would be consistent with the bird-in-the-hand dividend theory?
You are making a $120,000 investment and feel that a 20 percent rate of return is reasonable given the nature of the risks involved. You feel you will receive $48,000 in the first year, $54,000 in the second year, and $56,000 in the third year. You e..
Suppose Ford Motor stock has an expected return of 20% and a volatility of 40%, and Molson Coors Brewing has an expected return of 10% and a volatility of 30%. If the two stocks are uncorrelated, what is the expected return and volatility of an equal..
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