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MSFT currently trades for $45 per share and the riskless rate of interest is 3.5% per year continuously compounded. The futures price for a contract expiring in one year is $45 per share. Suppose that you construct a trade, as we did in class, to capture arbitrage profits with no initial investment. What would be the cash flow in one year from this arbitrage trade?
Assume also that the probability of voluntary early exercise at a node, conditional on no prior exercise, when (a) the option has vested.
You find a zero coupon bond with a par value of $10,000 and 17 years to maturity. If the yield to maturity on this bond is 4.9 percent, what is the price of the bond? Assume semiannual compounding periods.
The Florida lottery agrees to pay the winner 256,000 at the end o each year for 20 years. What is the future value of this prize if each payment is put in a account earning0.10
What would be the underestimation of your earnings as an investor if you use discount rate instead of the investment rate to measure return on your investment.
Seether Co. wants to issue new 20-year bonds for some much-needed expansion projects.
If the yield curve moved up by 1% in a parallel manner, which portfolio would likely suffer the greatest loss in value/price ?
What is the cost of the preferred stock, including flotation?
A firm needs to borrow $20 million in 30 days at 90-day LIBOR+1%. What is the payoff of the FRA?
The market consensus is that Analog Electronic Corporation has an ROE = 8% and a beta of 1.75. It plans to maintain indefinitely its traditional plowback ratio of 1/4. This year's earnings were $3.4 per share. Suppose your research convinces you An..
What is the payback period for a project with an initial investment of $180,000 that provides an annual cash inflow of $40,000 for the first three years
During a particular year, the Treasury note rate was 3.25%, the market return was 7% and a portfolio manager with beta of 0.5 realised a return of 8%. Evaluate the manager based on portfolio alpha.
calculate the probability of default of the corporate bond i.e. the likelyhood that the corporation will default in one year.
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