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You are short 50 calls at a strike of 95. The stock price is 90, the yearly standard deviation is 40 percent, the yearly interest rate is 4%, and the time to expiration is 3 months. You can buy/sell the underlying stock or a put option at 85 that expires in three months. You will be happy to know that the “d” in the Black-Sholes formula above is -0.12 for call at 95, and 0.436 for the put at 85. Given all this, what portfolio should you buy to delta-gamma hedge your portfolio?
calculate the specific cost of each each source of financing assume that the required return of retained earnings is equal to that on the common stock?
It is now Januery 1, 2010 and Bill Nilas is considering the purchase of an outstanding $1,000 par bond that was issued on Januery 1, 2006. It has a 6 percent annual coupon and had a 10-year original maturity. It has 5 years of call protection (from t..
State two reasons why standard deviation of the return of a stock may not be a good measure of the riskiness of that stock.
You’ve observed the following returns on Barnett Corporation’s stock over the past five years: –26.7 percent, 14.8 percent, 32.6 percent, 2.9 percent, and 21.9 percent. What was the average real risk-free rate over this time period? What was the aver..
Can an option on the yen-euro exchange rate be created from two options, one on the dollar-euro exchange rate, and the other on the dollar-yen exchange rate? Explain your answer.
What are the costs of the individual capital components?
We are evaluating a project that costs $744,000, has a six-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 45,000 units per year. Calculate the best-case and ..
Discuss the tradeoff between dividends and growth; elaborate on the use and limitations of the Dividend-Discount model. What is the efficient markets hypothesis, what are its three forms, and what are its implications?
A company has the following balance sheet: Assets: 45,000,000 Liabilities: 15,000,000. The equity section is simple: Retained earnings and 5,000,000 shares of common stock. The current market price is 80% of book value. The current yield on the stock..
Prepare a paper that addresses the political and business risks and the rewards associated with global business operations. Include a discussion of the impact of monetary exchange rates on corporate profits (CO 9).
You estimate that you will owe $48,000 in student loans by the time you graduate. The interest rate on your student loan is 4.6%. If you want to have this debt paid in full within 8 years, how much must you pay each month?
what is the current exchange rate of U.S. dollars for yen? Will the dollar depreciate or appreciate relative to the yen over this time period?
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