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Consider a market in which currently two assets are traded: (1) A stock, currently selling for $40, which is expected to increase in value by 40% or decrease in value by 20% every year. (2) A zero-coupon risk-free bond with one year maturity that costs $100 and offers 2% annually compounded interest. Suppose the financial institutions are considering the sale of the third asset with maturity of one year whose value at maturity equals max(S-40, 0)? S is the value of the stock at the time the asset matures and max(x, y) equals the greater of the two values x and y. a) What should be the fair price of this asset today? b) Supposethepriceofthisassettodayequals$4.Isthereanythingyoucoulddoto make arbitrage money and implement your "Bora-Bora dreams"? Show formally the arbitrage strategy.
Polk Products is considering an investment project with the following cash flows. Determine the project's discounted payback period.
how does the firms required rate of return on investment enter into inventory
What types of utility curves are generally associated with each of following attitudes toward risk:
under what interest rates would you prefer a perpetuity that pays 2 million a year to a one-time payment of 40
What are annual cash flows for the next five years? Hint: find CF0 to CF5
a production process at kenneth day manufacturing is shown in figure s7.9. the drilling operation occurs separately
confu inc. expects to have the following data during the coming year. what is the firms expected roe?assets
sales forecast why do you think most long-term financial planning begins with sales forecasts? put differently why are
Calculate the current (long-term) rate for one-, two-, three- and four-year maturity Treasury securities. Plot the resulting yield curve and what is the discount yield, bond equivalent yield and effective annual return on a $1 million Treasury Bill..
The company has a sustainable ROE of 12 percent and the payout ratio is considered to be stable at current levels. If Ajax common shares are currently selling at $25 per share, estimate Ajax's cost of equity capital.
Consider Portfolios that are comprised from 10 stocks and lie on the same minimum variance frontier
You have just received a windfall from an investment you made in a friend's business. What is the present value of your windfall? What is the future value of your windfall in three years (on the date of the last payment)?
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