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One year ago, you sold a call option on 1 million pounds with an expiration date of one year. You received a premium on the call option of $.02 per unit. The exercise price was $1.21. Assume that one year ago, the spot rate of the pound was $1.551, the one-year forward rate exhibited a premium of 4.5%, and the one-year futures price was the same as the one-year forward rate. From one year ago to today, the pound appreciated against the dollar by 3 percent. Today the call option will be exercised (if it is feasible for the buyer to do so).
a. Determine the total dollar amount of your profit or loss from your position in the call option.
b. Now assume that instead of taking a position in the call option one year ago, you sold a future contract on 1 million pounds with a settlement date of one year. Determine the total dollar amount of your profit or loss.
Provide financial evidence that the company is earning economic rents.
Suppose you believe that Basso Inc.'s stock price is going to increase from its current level of $22.50 sometime during the next 5 months. For $3.10 you can buy a 5-month call option giving you the right to buy 1 share at a price of $25 per share. If..
The correlation between the two stocks is –.04. What is the weight of each stock in the minimum variance portfolio?
Lady Ann products put together makeup packages to be sold to department stores. The firm sells these packages for $8.00 each; variable costs are 75% of the retail price. Fixed costs are $375,000 a year. Determine the break even point in #of units. De..
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CAPM AND REQUIRED RETURN - Calculate the required rate of return for Manning Enterprises assuming that investors expect a 3 5% rate of inflation in the future. The real risk-free rate is 2 5%, and the market risk premium is 6 5%. Manning has a beta o..
Patton Paints Corporation has a target capital structure of 40% debt and 60% common equity, with no preferred stock. Its before-tax cost of debt is 9% and its marginal tax rate is 40%. The current stock price is P0 = $31.50. The last dividend was D0 ..
The expected return and standard deviation of a portfolio that is 30 percent invested in 3 Doors, Inc., and 70 percent invested in Down Co. are the following: 3 Doors, Inc. Down Co. Expected return, E(R) 13 % 10 % Standard deviation, σ 46 35 -
Calculate the after tax salvage value for the equipment.
Northern Pacific Heating and Cooling Inc. has a 6-month backlog of orders for its patented solar heating system. To meet this demand, management plans to expand production capacity by 50% with a $20 million investment in plant and machinery.
Starting in year 6 the company's dividend is going to grow at 6% until year 10, and then will grow at 2% forever. Suppose the company has a beta of 1.2, the risk-free rate is 2%, and the market risk premium is 6%. What is the price of the company's s..
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