A European call option and a European put option on a stock both have a strike price of $45 and expire in 6 months. Currently, the stock price is $48.11 and the put price is $4.11. The risk-free rate is 2% per annum continuous compounding. Calculate the CALL price.
In: Finance
| Consider the following information: |
| Rate of Return if State Occurs | ||||
| State of Economy | Probability of State of Economy |
Stock A | Stock B | Stock C |
| Boom | 0.64 | 0.29 | 0.31 | 0.09 |
| Bust | 0.36 | 0.15 | 0.11 | 0.19 |
| Requirement 1: |
|
What is the expected return on an equally weighted portfolio of these three stocks? (Do not round your intermediate calculations.) |
| Requirement 2: |
|
What is the variance of a portfolio invested 10 percent each in A and B and 80 percent in C? (Do not round your intermediate calculations.) |
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The Quick Buck Company is an all-equity firm that has been in existence for the past three years. Company management expects that the company will last for two more years and then be dissolved. The firm will generate cash flows of $550,000 next year and $840,000 in two years, including the proceeds from the liquidation. There are 20,000 shares of stock outstanding and shareholders require a return of 12 percent.
What is the current price per share of the stock?
The board of directors is dissatisfied with the current dividend policy and proposes that a dividend of $650,000 be paid next year. To raise the cash necessary for the increased dividend, the company will sell new shares of stock. How many shares of stock must be sold? What is the new price per share of the existing shares of stock?
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An engineer has two investment options to choose from:
a. Broker A is asking the engineer to invest $10,000 now for five years and earn 12% interest rate compounded monthly for the first three years and 15% compounded semi-annually the last two years
b. Broker A is asking the engineer to invest $10,000 now for five years and earn 10% interest rate compounded monthly for the first two years and 17% compounded quarterly for the last three years.
Which option would you recommend?
c. Following discussions with some investment bankers, the engineer is informed that she could earn at least $12,000 profit on her $10,000 in five years. Prepare a counter offer for your selected broker by estimating a combination of interest rates (and compounding periods) that will earn approximately $12,000 (+ - 10%).
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Finance - CFIN 6th Edition Chapter 14, Problem 12 Solution
I am not able to come up with the same solution posted in the Chegg Study Textbook solution for this question beginning with step 4 of 7. The issue has to do with computing the EAR. I followed the textbook solution, but the response does not make sense for the EAR. Please help.
Chapter 14 Problem 12
Montana Allied Products (MAP) must borrow $1.7 million to finance its working capital requirements. The bank has offered a 45-day simple interest loan with a quoted interest rate of 8 percent. Calculate the loan’s APR and assuming there is (a) no compensating balance requirement and (b) a 15 percent compensating balance requirement, which MAP must satisfy from the loan proceeds. (c) How much does MAP have to borrow so that it has $1.7 million to pay its bills if the loan requires a 15 percent compensating balance?
The formula and the solution provided does not match up
(1+8/360)^8-1
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|
The price of Build A Fire Corp. stock will be either $52 or $83 at the end of the year. Call options are available with one year to expiration. T-bills currently yield 5 percent. |
| a. |
Suppose the current price of the company's stock is $60. What is the value of the call option if the exercise price is $50 per share? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Value of the call option | $ |
| b. |
Suppose the exercise price is $80 and the current price of the company's stock is $60. What is the value of the call option now? |
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|
You deposit $10,000 annually into a life insurance fund for the next 10 years, after which time you plan to retire. |
| a. |
If the deposits are made at the beginning of the year and earn an interest rate of 6 percent, what will be the amount in the retirement fund at the end of year 10? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) |
| b. |
Instead of a lump sum, you wish to receive annuities for the
next 20 years (years 11 through 30). What is the constant annual
payment you expect to receive at the beginning of each year if you
assume an interest rate of 6 percent during the distribution
period? (Do not round intermediate calculations. Round your
answer to 2 decimal places. (e.g., 32.16)) |
| c. |
Repeat parts (a) and (b) above assuming earning rates of 5 percent and 7 percent during the deposit period and earning rates of 5 percent and 7 percent during the distribution period. (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16)) |
| Deposit Period |
Value at 10 Years |
Distribution Period |
Annual payment |
| 5 percent | $ | 5 percent | $ |
| 7 percent | $ | ||
| 7 percent | $ | 5 percent | $ |
| 7 percent | $ |
In: Finance
Part A
|
A put option and a call option with an exercise price of $80 and three months to expiration sell for $1.45 and $4.40, respectively. |
|
If the risk-free rate is 4.6 percent per year, compounded continuously, what is the current stock price? |
Part B
A call option has an exercise price of $60 and matures in three months. The current stock price is $64, and the risk-free rate is 5 percent per year, compounded continuously. What is the price of the call if the standard deviation of the stock is 0 percent per year?
Part C
|
A put option and call option with an exercise price of $50 expire in four months and sell for $1.02 and $5.00, respectively. |
|
If the stock is currently priced at $53.30, what is the annual continuously compounded rate of interest? |
In: Finance
A 35-year maturity bond has a 6% coupon rate, paid annually. It
sells today for $937.42. A 25-year maturity bond has a 5.5% coupon
rate, also paid annually. It sells today for $949.5. A bond market
analyst forecasts that in five years, 30-year maturity bonds will
sell at yields to maturity of 7% and that 20-year maturity bonds
will sell at yields of 6.5%. Because the yield curve is
upward-sloping, the analyst believes that coupons will be invested
in short-term securities at a rate of 5%.
a. Calculate the expected rate of return of the
35-year bond over the five-year period. (Do not round
intermediate calculations. Round your answer to 2 decimal
places.)
b. What is the expected return of the 25-year
bond? (Do not round intermediate calculations. Round your
answer to 2 decimal places.)
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Explain the step in constructing an incremental budget and why
one should be employed. Explain the strengths and weaknesses of an
incremental budget and how a manager can unnecessarily increase or
pad his or her budget?
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| The table below shows annual returns for stocks of companies X and Y. Calculate the arithmetic average returns. In addition, calculate their variances, as well as their standard deviations. |
| Returns | ||
| Year | X | Y |
| 1 | 11 % | 19 % |
| 2 | 29 | 40 |
| 3 | 18 | -9 |
| 4 | -19 | -23 |
| 5 | 20 | 48 |
| Requirement 1: | |
| (a) | The arithmetic average return of company X's stock is: |
| (Click to select) 11.80% 9.56% 13.33% 14.75% 14.40% | |
| (b) |
The arithmetic average return of company Y's stock is: |
| (Click to select) 15.00% 16.95% 18.30% 12.15% 18.75% |
| Requirement 2: | |
| (a) | The variance of company X's stock returns is: (Do not round intermediate calculations.) |
| (Click to select) 0.027354 0.041997 0.033770 0.033597 0.042213 | |
| (b) | The variance of company Y's stock returns is: (Do not round intermediate calculations.) |
| (Click to select) 0.075938 0.117188 0.107043 0.093750 0.085635 |
| Requirement 3: | |
| (a) |
The standard deviation of company X's stock returns is: (Do not round intermediate calculations.) |
| (Click to select) 18.23% 14.89% 20.49% 18.38% 22.97% | |
| (b) |
The standard deviation of company Y's stock returns is: (Do not round intermediate calculations.) |
| (Click to select) 32.72% 29.26% 24.80% 30.62% 38.27% |
rev: 09_20_2012
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In: Finance
Describe how Airbnb company can make extra revenue from value added services rather than relying on fixed commission from host and guest ( 300-500 words no plagiarized content)
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FCOJ, Inc., a prominent consumer products firm, is debating whether to convert its all-equity capital structure to one that is 30 percent debt. Currently, there are 7,000 shares outstanding, and the price per share is $44. EBIT is expected to remain at $30,100 per year forever. The interest rate on new debt is 9 percent, and there are no taxes.
a. Allison, a shareholder of the firm, owns 150 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b. What will Allison’s cash flow be under the proposed capital structure of the firm? Assume she keeps all 150 of her shares. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
c. Assume that Allison unlevers her shares and re-creates the original capital structure. What is her cash flow now? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
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SuFi Inc. is expected to pay the following dividends over the next four years: $9, $7, $5, and $2.74. Their CFO, Mr. Dane Cook, pledges to maintain a constant 5 percent growth rate in dividends forever. If the required return on the stock is 13 percent, what is the current share price?
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You are an analyst for a venture capital fund. The firm you are valuing is expected to have free cash flows next year of $1,000, and they are expected to grow at 4% every year forever (if they survive). Further, using CAPM and accounting for the fees that your VC charges, the cost of capital for the firm is 23%. What is the value of the firm, assuming it survives?
$813
$5263
$961.54
$25000
A rival VC fund put in a bid for the firm. They are offering to invest $100 for 16.67% of the firm. What is the implied pre-money valuation? What is the implied probability of survival for the firm?
100 ; about 25%
300 ; about 15%
500 ; about 10%
700 ; about 75%
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