Facebook (FB) currently trades at $194.00. You purchase a 16 month European $8.00 strike call option on a short futures contract on one share of FB. The futures delivery date is 29 months from now and the delivery price is $233.00. The risk-free rate is 5.1%. Compute the range of prices of FB 16 months from now that will make you want to exercise your option.

You own a wholesale plumbing supply store. The store currently generates revenues of $1.02 million per year. Next​ year, revenues will either decrease by 10.2% or increase by 4.6%​, with equal​ probability, and then stay at that level as long as you operate the store. You own the store outright. Other costs run $880,000 per year. There are no costs to shutting​ down; in that case you can always sell the store for $440,000. What is the business worth today if the cost of capital is fixed at 10.5%?  

​(​Hint: Make sure to round all intermediate calculations to at least four decimal places.​)

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Corporate bonds offer a series of fixed payments consisting of interest payments and face value at maturity. As so, managers of financial intermediaries like pension funds and insurance companies frequently utilize such instruments to achieve their financing objectives.

Questions for discussion:

What is assumed the interest payments can be reinvested at?

What is interest rate risk and what would happen to the price of a bond given interest rates increase?

Assume the manager of a $100 million portfolio of corporate bonds predicts interest rates will rise in the near future.

What adjustments should be made to the portfolio assuming the market has not already adjusted for this prediction?

Will a long-term zero coupon bond have more or less interest rate risk than a comparable coupon paying bond?

Give three reasons why an owner would wish to start a corporation rather than a proprietorship or partnership.

Problem 4-31 Non Annual Compounding It is now January 1. You plan to make a total of 5 deposits of $300 each, one every 6 months, with the first payment being made today. The bank pays a nominal interest rate of 8% but uses semiannual compounding. You plan to leave the money in the bank for 10 years.

How much will be in your account after 10 years? Round your answer to the nearest cent.

You must make a payment of $1,979.70 in 10 years. To get the money for this payment, you will make 5 equal deposits, beginning today and for the following 4 quarters, in a bank that pays a nominal interest rate of 8% with quarterly compounding.

How large must each of the 5 payments be? Round your answer to the nearest cent.

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a rate of 5%. The probability distribution of the risky funds is as follows:

The correlation between the fund returns is 0.10.

What is the Sharpe ratio of the best feasible CAL? (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.)

Discuss the approaches currently used by retail investors to passively invest in equities markets, and consider how this may have changed over the past twenty years

Your firm is contemplating a capital investment in equipment that will enable a new product line. Last month you paid a consultant $50,000 to analyze the feasibility of the product line, but now you have tasked your financial analysis group with evaluating the product line. The equipment will cost $2,000,000 (payable today). The equipment will be depreciated straight line to $0 over the two year operating period. You believe that the equipment will have a $650,000 salvage value at the end of year 2. The expected annual revenues are $13,000,000, annual cash expenses will be $10,250,000. To start production, an upfront investment in net working capital of $50,000 will be required (assume full recovery at the end of the operating period). With a tax rate of 21% and a discount rate of 10%, should this expansion be undertaken?

Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $3.7 million. The fixed asset falls into the 3-year MACRS class (MACRS Table) and will have a market value of $285,600 after 3 years. The project requires an initial investment in net working capital of $408,000. The project is estimated to generate $3,264,000 in annual sales, with costs of $1,305,600. The tax rate is 24 percent and the required return on the project is 17 percent.

What is the project's year 0 net cash flow?

What is the project's year 1 net cash flow?

What is the project's year 2 net cash flow?

What is the project's year 3 net cash flow?

What is the NPV?

1. What type of relationship would you expect to see between the following variables? Fully explain.

A. Delinquency rate on credit card loans at all commercial banks and percentage change in HouseHold Net Worth?

B. Delinquency rate on credit card loans at all commercial banks and RGDP Growth?

Stocks A and B have the following probability distributions of expected future returns: Probability A B 0.1 (14 %) (39 %) 0.2 3 0 0.4 10 19 0.2 20 27 0.1 40 48 Calculate the expected rate of return, , for Stock B ( = 11.20%.) Do not round intermediate calculations. Round your answer to two decimal places. % Calculate the standard deviation of expected returns, σA, for Stock A (σB = 21.90%.) Do not round intermediate calculations. Round your answer to two decimal places. % Now calculate the coefficient of variation for Stock B. Do not round intermediate calculations. Round your answer to two decimal places. Is it possible that most investors might regard Stock B as being less risky than Stock A? If Stock B is more highly correlated with the market than A, then it might have the same beta as Stock A, and hence be just as risky in a portfolio sense. If Stock B is less highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be less risky in a portfolio sense. If Stock B is less highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be more risky in a portfolio sense. If Stock B is more highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be less risky in a portfolio sense. If Stock B is more highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be less risky in a portfolio sense. Assume the risk-free rate is 3.5%. What are the Sharpe ratios for Stocks A and B? Do not round intermediate calculations. Round your answers to four decimal places. Stock A: Stock B: Are these calculations consistent with the information obtained from the coefficient of variation calculations in Part b? In a stand-alone risk sense A is less risky than B. If Stock B is less highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be more risky in a portfolio sense. In a stand-alone risk sense A is more risky than B. If Stock B is less highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be less risky in a portfolio sense. In a stand-alone risk sense A is more risky than B. If Stock B is less highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be more risky in a portfolio sense. In a stand-alone risk sense A is less risky than B. If Stock B is more highly correlated with the market than A, then it might have the same beta as Stock A, and hence be just as risky in a portfolio sense. In a stand-alone risk sense A is less risky than B. If Stock B is less highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be less risky in a portfolio sense.

Think about the concepts of risk and return in the context of the size of a firm. Would these change if the firm were large? Small? Medium-sized? Why or why not? (Provide 300 original analysis, perfect grammer)