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You buy a share of stock, write a one-year call option with X = $20, and buy a one-year put option with X = $20. Your net outlay to establish the entire portfolio is $18.60. What must be the risk-free interest rate? The stock pays no dividends. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Risk-free rate %
Suppose the real rate is 3.4 percent and the inflation rate is 5.0 percent. What rate would you expect to see on a Treasury bill?
If you deposit $4,800 at the end of each of the next 15 years into an account paying 11.3 percent interest, how much money will you have in the account in 15 years? How much will you have if you make deposits for 30 years?
National Steel 15-year, $1000 par value bonds pay 5.5 percent interest annually. The market price of the bonds is &1,085, and your required rate of return is 7 percent. a. Compute the bonds expected rate of return. b. Determine the value of the bond ..
Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. However, investors expect Simpkins to begin paying dividends, with the first dividend of $1.25 coming 3 years from today. what is..
Find the present value of the following cash flow streams. The appropriate interest rate is 8%.
Describe an example of a real-world industry or market that would be considered by economists to be a natural monopoly. What characteristics of the industry make it a monopoly? What is the impact of the monopoly power on its customers? Why might gove..
Companies U and L are identical in every respect except that U is unlevered while L has $8 million of 7% bonds outstanding. Assume that (1) there are no corporate or personal taxes, (2) all of the other MM assumptions are met, (3) EBIT is $1 million,..
Whiteside Corporation issues $500,000 of 9% bonds, due in 10 years, with interest payable semi annually. At the time of issue, the market rate for such bonds is 10%. Compute the issue price of the bonds.
Green Landscaping, Inc. is using net present value (NPV) when evaluating projects. Green Landscaping’s cost of capital is 8.32 percent. What is the NPV of a project if the initial costs are $1,596,830 and the project life is estimated as 12 years? Th..
For which situation below would one need to "smooth out" the variation in each set of cash flows so that each becomes perpetuity?
Both Bond Bill and Bond Ted have 12.2 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 4 years to maturity, whereas Bond Ted has 21 years to maturity. If interest rates suddenly rise by 2 percent, what is the perc..
A project has annual cash flows of $7,000 for the next 10 years and then $11,000 each year for the following 10 years. The IRR of this 20-year project is 12.74%. If the firm's WACC is 12%, what is the project's NPV?
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