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In practice, even without maturity and underlying mismatch, hedging using futures does not always require a one-to-one hedge ratio. Tailing factor needs to be considered. Suppose the current spot price is $3. With 50 percent of the probability, the spot price will increase or decrease by 1 dollar for each year as shown in the graph below. If the annual discrete compounding risk-free rate is 10%, and the cost of carry offsets the convenience yield exactly, then what is your hedging strategy?
What was the arithmetic average return on the stock over this five-year period? What was the variance of the returns over this period?
Messman Manufacturing will issue common stock to the public for $40. The expected dividend and growth in dividends are $2.75 per share and 5%, respectively. If the flotation cost is 14% of the issue's gross proceeds, what is the cost of external equi..
Assume that there are two three-year bonds with face values equaling $1000. The coupon rate of bond A is .05 and .08 for bond B. A third bond C also exists, with a maturity of two years. Bond C has a face value of $1000; it has a coupon rate of 11%. ..
An investment project has annual cash inflows of $9,000, $8,500, $8,000, and $7,300, and a discount rate of 10 percent. If the initial cost is $23,700, the discounted payback period for these cash flows is _______ years.
You can make an inference from the ratios. For example, you can calculate the current and quick ratios to find the state of a company's liquidity.
The Graber Corporation’s common stock has a beta of 1.3. If the risk-free rate is 5.3 percent and the expected return on the market is 11 percent, what is the company’s cost of equity capital?
The ABC Company bond has an annual coupon rate of 5.50%, pays interest semi-annually and has a face value of $1,000.
Ten-year zero coupon bonds issued by the U.S. Treasury have a face value of $1,000 and interest is compounded semiannually. If similar bonds in the market yield 11.38 percent, what is the value of these bonds?
According to the Big Mac Index, the implied PPP exchange rate is Mexican peso 8.50/$1 but the actual exchange rate is peso 10.80/$1.
A fast-growing firm recently paid a dividend of $0.60 per share. The dividend is expected to increase at a 20 percent rate for the next four years. Afterwards, a more stable 12 percent growth rate can be assumed. If a 13.5 percent discount rate is ap..
Time Bird's Eye Treehouses, Inc., a Kentucky company, has determined that a majority of its customers are located in the Pennsylvania area. It therefore is considering using a lockbox system offered by a bank located in Pittsburgh.
The discussed the needed marketing commitments to facilitate a successful business. What are the benefits to the consumer? Who is your target market?
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