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The common stock of ABC Corporation has been trading in a narrow price range for the past month, and you are convinced it is going to stay in that range in the next three months. You do not know whether it will go up or down, however. The current price of the stock is $100 per share, and the price of a three-month call option on ABC stock with an exercise price of $100 is $10. The price of the three-month put option on ABC stock with an exercise price of $100 is $8.00.
a. What would be the profit/loss, if ABC stock falls to $95?
b. What would be the break-even points of your strategies?
Six years ago the Singleton Company issued 20-year bonds with a 14% annual coupon rate at their $1,000 par value. The bonds had a 9% call premium, with 5 years of call protection. Today Singleton called the bonds. Compute the realized rate of return ..
An investor purchases a mutual fund share for $100. The fund pays dividends of $7, distributes a capital gain of $8, and charges a fee of $6 when the fund is sold one year later for $101. What is the net rate of return from this investment?
Gallagher Group has a debt/equity ratio of 1.2. The firm has a cost of equity of 12% and a cost of debt of 8%. What will the cost of equity be if the target debt/equity ratio increases to 2.0 and the cost of debt does not change? Ignore taxes and ban..
Demarius owns investment A and 1 share of stock B. The total value of his holdings is 2,172.3 dollars. Investment A is expected to pay annual cash flows to Demarius of 350 dollars per year with the first annual cash flow expected later today and the ..
Hollywood Shoes would like to maintain their cash account at a minimum level of $54,000, What will be their optimal upper cash limit?
The Trektronics store begins each week with 240 phasers in stock. This stock is depleted each week and reordered. The carrying cost per phaser is $29 per year and the fixed order cost is $51. What are the current total carrying costs? What is the eco..
You’ve just joined the investment banking firm of Dewey, Cheatum, and Howe. They’ve offered you two different salary arrangements. You can have $82,000 per year for the next two years, or you can have $71,000 per year for the next two years, along wi..
Western Enterprises’ bonds have 10 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon rate is 9 percent. The bonds have a yield to maturity of 7 percent. What is the current market price of these..
Discuss how certain features (characteristics) of bonds affect their risk and hence return. Also discuss the usefulness and limitations of bonds ratings. How would these factors change your investment strategy when looking at bonds?
1. What is the present value of $ 815,400 deposited in 23 years if the rates of interest are 6 percent for the first six years, 7 percent for the next 6 and 8 percent for the remaining period?
Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land six years ago for $5.5 million in anticipation of using it as a warehouse and distribution site, but the comp..
Trust and respect are crucial to the success of a spiritual organization. In some industries might unit prices (market prices) change often?
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