A stock price follows geometric Brownian motion with an expected return of 16% and a volatility of 35%. The current price is $38. (a) What is the probability that a European call option on the stock with an exercise price of $40 and a maturity date in 6 months will be exercised? (b) What is the probability that a European put option on the stock with the same exercise price and maturity will be exercised?

A mortgage lender and a borrower agree on a $3,000,000 partially amortizing commercial mortgage loan for 10 years requiring equal annual repayments and a balloon payment of $1,500,000 at loan maturity.

1. If the interest rate on the loan is 8% annually, what will be the periodic amount of debt service due?

2. If the borrower chooses to prepay the loan after 5 years, what will be the total payment due at the end of year 5?

A senior engineer at Company C has recommended the company to replace a 2-year-old measurement device immediately. He believes that it can be shown that the proposed equipment is economically advantageous at a 15% per year rate in a 5-year time span.

b. Determine the Economic Service Life (ESL) at interest of 10% per year for a machine that has a first cost of $100,000 with the data below Year AOC Market Value 1 -$1000 $7000 2 -$1200 $5000 3 -$1500 $4200 4 -$2000 $3000 5 -$3000 $2000

A portfolio consists of the following two funds:
A: E(r) = 13%, Stdev = 16%, amount invested = $16,000
B: E(r) = 9%, Stdev = 12%, amount invested = $8,000
Corr(A,B) = 0.6, Risk-free rate = 4%.
What is the Sharpe ratio of the portfolio? (Hint: you need to find portfolio return and portfolio standard deviation).

You are considering how to invest part of your retirement savings.You have decided to put $ 400 comma 000 into three​ stocks: 56 % of the money in GoldFinger​ (currently $ 18​/share), 19 % of the money in Moosehead​ (currently $ 72​/share), and the remainder in Venture Associates​ (currently $ 6​/share). Suppose GoldFinger stock goes up to $ 30​/share, Moosehead stock drops to $ 65​/share, and Venture Associates stock rises to $ 7 per share. a. What is the new value of the​ portfolio? b. What return did the portfolio​ earn? c. If you​ don't buy or sell any shares after the price​ change, what are your new portfolio​ weights? a. What is the new value of the​ portfolio? The new value of the portfolio is ​$ nothing. ​ (Round to the nearest​ dollar.) b. What return did the portfolio​ earn? The portfolio earned a return of nothing​%. ​(Round to two decimal​ places.) c. If you​ don't buy or sell any shares after the price​ change, what are your new portfolio​ weights? The weight of Goldfinger is now nothing​%. ​(Round to two decimal​ places.)   The weight of Moosehead is now nothing​%. ​(Round to two decimal​ places.) The weight of Venture is now nothing​%. ​(Round to two decimal​ places.)

Henry Jones is the owner of True Adventure Vacations, Inc. He is considering the purchase of computer equipment that will facilitate airline and hotel accommodations. He paid a consultant a $20,000 fee to identify the best computer system and to identify the best computer system and to identify related costs of the project. The computer will cost $300,000. Installation will cost $20,000 and training of personnel will cost $10,000. He will incur $50,000 in advertising costs to kick off the new improved services that will feature worldwide accommodations. He projects that there will be a $200,000 increase in sales annually over the 5 year life of the project. Costs are 60% of sales. The computer has a five year useful life and a salvage value of $30,000. Jones will use straight line depreciation. Working capital investment is $10,000 and will be fully recovered at the termination of the project in five years.

1. What is the annual after-tax cash flow for this project over the next five years? The tax rate is 34%.
2. What is the NPV of the project if the discount rate is 12%?

Problem 12-01
AFN equation

Broussard Skateboard's sales are expected to increase by 15% from $8.4 million in 2016 to $9.66 million in 2017. Its assets totaled $4 million at the end of 2016. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2016, current liabilities were $1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is forecasted to be 7%, and the forecasted payout ratio is 60%. Use the AFN equation to forecast Broussard's additional funds needed for the coming year. Round your answer to the nearest dollar. Do not round intermediate calculations.

1. A bond has a price of $940 at a YTM of 7%, a duration of 7.50 and a convexity of 60.50. Estimate the bond’s price if YTM were to fall to 5% using duration PLUS convexity. SHOW WORK

Assume that Valley Forge Hospital has only the following three payer groups:

The hospital’s fixed costs are $38 million:

1. What is the hospital’s net income?
2. Assume that half of the 100,000 covered lives in the commercial payer group will be moved into a capitated plan. All utilization and cost data remain the same. What PMPM rate will the hospital have to charge to retain their Part a net income?
3. What overall net income would be produced if the admission rate of the capitated group were reduced from the commercial level by 10 percent?

Assuming that the utilization reduction also occurs, what overall net income would be produced if the variable cost per admission for the capitated group were lowered to $2,200?

Jiminy's Cricket Farm issued a 30-year, 6.3 percent semiannual bond eight years ago. The bond currently sells for 110 percent of its face value. The book value of the debt issue is $135 million. In addition, the company has a second debt issue, a zero coupon bond with 12 years left to maturity; the book value of this issue is $65 million, and it sells for 64.3 percent of par. The company’s tax rate is 22 percent.

Round to 3rd decimal place.

7. Big City Manufacturing (BCM) is preparing its cash budget and expects to have sales of $450,000 in January, $375,000 in February, and $555,000 in March. If 20% of the sales are for cash, 45% are credit sales paid in the month after the sale, and another 35% are credit sales paid 2 months after the sale, what are the expected cash receipts for March?

Answer: $437,250

8. In problem 7, Big City Manufacturing (BCM) assumed that all credit sales were paid in full, which is not realistic. BCM studied its past credit sales and determined that 3.5% of its credit sales resulted in Bad Debts that were never collected. Using the data from the previous problem with the new assumption that 3.5% of credit sales were never collected, what is your revised estimate for the expected cash receipts for March? Enter your answer rounded to two decimal places.  

You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $70,000, and it would cost another $17,500 to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $35,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $7,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $64,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 35%. What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest cent. $ What are the project's annual cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest cent. Year 1: $ Year 2: $ Year 3: $ If the WACC is 11%, should the spectrometer be purchased?