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A owns 1,000 shares of IBM and lends them to B, when their fair market value is $100,000. A’s basis in the shares is $20,000. The agreement between A and B provides that B will return 1,000 shares of IBM to B sometime in the future. The contract also provides that B will make payments to B of an equal amount if IBM makes any distributions to its shareholders during the time the loan is outstanding. A has the right to call back the shares on 3 days’ notice. C also has a $20,000 basis in her shares of IBM. C lends them to D when they have a fair market value of $100,000. C’s contract with D has the same terms that A and b have in their contract, with one exception. The difference is that D will always return $100,000 worth of IBM stock at the termination of the loan. Will A recognize any gain when A lends out the shares? Why or why not? Will C recognize any gain when C lends out the shares? Why or why not?
The covariance of the returns between Willow Stock and Sky Diamond Stock is 0.0940. The variance of Willow is 0.1890, and the variance of Sky Diamond is 0.1210. What is the correlation coefficient between the returns of the two stocks?
Explain what will happen to the equilibrium price and equilibrium quantity of bonds in each of the following situations.
You are a rancher who purchased cattle last summer. The purchase price was $2,500 for two head of cattle (2 cows). You borrowed $30,000 at 4% interest for 1 year from your bank to purchase 12 head of cattle. After feeding and taking care of your 12 c..
Show the debit and credit entries in each balance-of-payments account – goods, services, income, unilateral transfers, direct investment, portfolio investment, other capital and reserve assets – for the following transactions. Calculate the nation’s ..
Your finance text book sold 52,500 copies in its first year. The publishing company expects the sales to grow at a rate of 23.0 percent for the next three years, and by 13.0 percent in the fourth year. Calculate the total number of copies that the pu..
Prepare a financial forecast for the financial year ending January 31, 2016 to determine the company's investment and financing needs based on the expected growth.
Consider an asset that costs 640,000 and is depreciated straights-line to zero over its eight year tax life. the asset is to be used in a five year project; at the end of the project that asset can be sold for 175,000. If the relevant tax rate is 35%..
You wrote ten call option contracts on JIG stock with a strike price of $41 and an option price of $.60. What is your net gain or loss on this investment if the price of JIG is $46.05 on the option expiration date?
As part of your financial planning, you wish to purchase a new car exactly 5 years from today. The car you wish to purchase costs $14,000 today, and your research indicates that its price will increase by 2% to 4% per year over the next 5 years. Esti..
What is the present value of working capital expenditures if a project entails a working capital expenditure of $400,000 immediately, which is recovered in 3 years? Assume the tax rate is 10% and the opportunity cost of capital is 9%.
Franz established an irrevocable trust to provide income to his mother for life and the remainder interest to his son. He transferred $400,000 to the trust today. The IRS Section 7520 rate is 5% and his mother is age 82. What is the amount of the tot..
When it matures at the end of 7.5 years it pays out $1,000. If investors wish to earn 2.35% per year on this bond investment, what is the current price of the bond
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