Use a one step binomial option pricing model to value a 1 year at the money call option on AT&T. Assume interest rates are 2%. How does your value compare with the market price?

Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are shown on the time line below. Depreciation, salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. Both projects have 4-year lives, and they have risk characteristics similar to the firm's average project. Bellinger's WACC is 8%.

What is Project A’s IRR? Do not round intermediate calculations. Round your answer to two decimal places.

%

What is Project B's IRR? Do not round intermediate calculations. Round your answer to two decimal places.

%

If the projects were independent, which project(s) would be accepted according to the IRR method?

-Select-NeitherProject AProject BBoth projects A and BCorrect 1 of Item 3

If the projects were mutually exclusive, which project(s) would be accepted according to the IRR method?

-Select-Neither Project AProject BBoth projects A and BCorrect 2 of Item 3

Could there be a conflict with project acceptance between the NPV and IRR approaches when projects are mutually exclusive?

-Select-YesNoCorrect 3 of Item 3

The reason is -Select-the NPV and IRR approaches use the same reinvestment rate assumption so both approaches reach the same project acceptance when mutually projects are considered.the NPV and IRR approaches use different reinvestment rate assumptions so there can be a conflict in project acceptance when mutually exclusive projects are considered.Correct 4 of Item 3

Reinvestment at the -Select-IRRWACCCorrect 5 of Item 3 is the superior assumption, so when mutually exclusive projects are evaluated the -Select-NPVIRRCorrect 6 of Item 3 approach should be used for the capital budgeting decision.

International Machinery Company (IMC) is a Swedish multinational manufacturing company. Currently, IMC's financial planners are considering undertaking a 1-year project in the United States. The project's expected dollar-denominated cash flows consist of an initial investment of $2,650 and a cash inflow the following year of $3,350. IMC estimates that its risk-adjusted cost of capital is 14%. Currently, 1 U.S. dollar will buy 7.1 Swedish kronas. In addition, 1-year risk-free securities in the United States are yielding 6%, while similar securities in Sweden are yielding 5%.

a. If the interest parity holds, what is the forward exchange rate of Swedish krona per U.S. dollar? Do not round intermediate calculations. Round your answer to two decimal places.

Swedish krona per U.S. dollar

b. If IMC undertakes the project, what is the net present value and rate of return of the project for IMC in home currency? Do not round intermediate calculations. Round your answers to two decimal places.

NPV:  Swedish kronas

Rate of return:  %

IRR Project K costs $42,881.70, its expected cash inflows are $10,000 per year for 8 years, and its WACC is 14%. What is the project's IRR? Round your answer to two decimal places.

Write at least two large paragraphs to describe your critical thoughts and reflections about watching the Movie The Race to Rebuild America’s Infrastructure. Specifically, what do you think about the issue of an aging and deteriorating American public infrastructure system? What are the possible consequences of an aging and deteriorating American public infrastructure system? How do we take action to address this issue?

Amy is a fixed-income portfolio manager. One year ago, given her expectations of a stable yield curve over the coming 12 months and noting that the yield curve was upward sloping, She elected to position her portfolio solely in 20-year US Treasury bonds with a coupon rate of 4% and a price of $101.7593. After a year, she sells the bonds at a price of $109.0629.

a. Which yield curve strategy was most likely implemented by Amy last year?

Circle one. Sell Convexity / A barbell structure / Riding the yield curve

b. Now Amy is expecting the interest rates over the next 12 months to be highly volatile. She is seeking your advice on how to reposition the portfolio. Would you recommend her to sell or buy the call options on the bonds held in the portfolio, and why?

SkyTech Ltd. is expected to pay a per-share dividend next year of $30. The market’s consensus is that the firm’s dividend growth rate of 2% per year will be maintained in the foreseeable future. SkyTech’s cost of equity is 10% per year.

(a) What is the price of a share of SkyTech?                                

(b) Suppose SkyTech’s internal view is that it has an expected average yearly dividend growth of 2% because its return on equity is 8% and management retains 25% of earnings. What is the earnings per share of SkyTech next year? What is the present value of growth opportunities per share of SkyTech?                                                 

(c)    Suppose SkyTech is about to announce that it will increase its retention ratio to 50%, effective immediately. If the market is still unaware of SkyTech’s decision, what will be the new value of the stock after the change in policy? How would you invest to profit from this fact?                                                            

(d)    If the dividend policy of SkyTech Ltd. has not shown a clear relationship to its earnings growth, what other absolute valuation model can you use to value the company? What cash flows should be used in the valuation?                          

Are the following statements true or false? Briefly explain your answers.

a)    If the ROE of a company is higher than its discount rate r, it would be in shareholders’      interest to retain earnings in the company.                                      

        (b)    “Duration is a good measure of interest rate risk if change in yield is small and rates change    in a parallel fashion. Satisfying these two assumptions imply that two portfolios with the        same duration will react in exactly the same way to a given change in yield.” True or false?    Briefly explain your answer.  

1. A stock records the following returns over the last 6 months.

1. What are the arithmetic returns for the stocks?
2. What are the geometric returns for the stocks?
3. What are the variances for the stocks?
4. What are the standard deviations for the stocks?
5. Compute the coefficient of variation of stocks.
6. Which stock would you choose? Why?

Are the following statements true or false? Briefly explain your answers. [Hint: State your        conclusion and then briefly explain (preferably in no more than a few lines).]

        (a)   If a firm announces an unexpectedly large cash dividend, the EMH would predict a gradual price change to occur for several weeks after the announcement.

       (b)   If the ROE of a company is higher than its discount rate r, it would be in shareholders’ interest to retain earnings in the company.                                    

       (c)   “Duration is a good measure of interest rate risk if change in yield is small and rates change     in a parallel fashion. Satisfying these two assumptions imply that two portfolios with the    same duration will react in exactly the same way to a given change in yield.” True or false?         Briefly explain your answer.                                  

Erin currently has $44,000 in an account. She will deposit $10,000 every other year beginning next year and ending nine years from today. She will have $_____ in her account 10 years from today. Assume the account pays 5% per annum.

What is a currency crisis and how does it affect the banking system? In what ways do banking crisis crisis speak currency crisis?

JQ Investor has 9,000 of DuPont currently valued at $56. He sets up a collar at $49 with a premium of $2.92, and $63 with a premium of $4.61. When the collar expires the stock is trading at $58.80

JQ buys _______ puts

and writes _______ calls.

The impact to the portfolio of this collar at the time it is put in place is $__________

The value of the portfolio at the close on the day the collar expires is $__________

Correct answers:

90 puts, 57 calls, -3.00, 529,127.00

Please tell me how to get to these solutions. Thank you!

LRCX currently pays $5 in dividend. You think the company can growth dividend at 20% for the next 5 years. From year 6 on, the company can growth dividend at 10% a year. The beta for LRCX is 1.2 and the market risk premium is 8%, with risk free rate of 2.5%. What should be the price of LRCX today according to dividend discount model?