Consider an offer to supply 5 paintings per year to an art gallery in Rome for the next five years. The contract is exclusive, meaning that, if you accept it, you cannot sell paintings to other galleries or other clients. The contract also offers a signing bonus of $100,000. If you were to refuse the contract, you estimate that you would be selling 7 paintings a year, at a price of $45,000 each, for the next 5 years. Assume that your required rate of return is 20%. What is the minimum price per painting (assume the same price for each painting) at which you are willing to accept the contract?
A. $59,560 B. $39,517 C. $56,312 D. $65,500 E. $41,878
In: Finance
The current price of stock XYZ is 100. In one year, the stock price will either be 120 or 80. The annually compounded risk-free interest rate is 10%. i. Calculate the no-arbitrage price of an at-the-money European put option on XYZ expiring in one year. ii. Suppose that an equivalent call option on XYZ is also trading in the market at a price of 10. Determine if there is a mis-pricing. If there is a mis-pricing, demonstrate how you would take advantage of the arbitrage opportunity.
In: Finance
Derek will deposit $1,528.00 per year for 14.00 years into an account that earns 13.00%, The first deposit is made next year. He has $14,070.00 in his account today. How much will be in the account 36.00 years from today?
Derek will deposit $3,102.00 per year for 9.00 years into an account that earns 5.00%. Assuming the first deposit is made 4.00 years from today, how much will be in the account 35.00 years from today?
In: Finance
A floating rate mortgage loan is made for $100,000 for a 30-year period at an initial rate of 12 percent interest. However, the borrower and lender have negotiated a monthly payment of $800. (a)What will be the loan balance at the end of year 1?
(b) What if the interest rate increases to 13 percent at the end of year 1? How much interest will be accrued as negative amortization in year 5 if the payment remains at $800?
In: Finance
A $300,000 investment is made with anticipated cash flows of $65,000 a year for twelve years and a final payment of $261,100 in year thirteen.
a.) What is the expected return on this investment? b.) What would one pay for this investment and the end of year five assuming a required rate of return equals 21% and the expected cash flows are not expected to change? c.) What return would the seller earn? d.) Assume that expectations have changed at end of year five and cash flows will be $85,00/year in years 6 thru 12 and the terminal payment stays the same. What price would the buyer pay using 21% as the required rate of return. e.) What return would the seller earn? f.) What return would the buyer earn assuming the change cash flows does occur. g.) Briefly comment on how changes in expectations impact a buyer’s and seller’s rate of return.
what more information would you like me to provide?
In: Finance
Suppose that the consensus forecast of security analysts of NoWork Inc. is that earnings next year will be E1 = $5.00 per share. The company tends to plow back 60% of its earnings and pay the rest as dividends. The CFO estimates that the company’s growth rate will be 8% from now on.
(b) Suppose you observe that the stock is selling for $50.00 per share, and that this is the best estimate of its equilibrium price. What would you conclude about either (i) your estimate of the stock’s required rate of return or (ii) the CFO’s estimate of the company’s future growth rate?
(c) Suppose there is uncertainty about the growth rate. With 50% probability the growth rate will be 6%, with 50% probability the growth rate will be 10%. What are the respective market values under the two growth rates? What must be the price of the stock, given that both growth rates have equal probability?
(d) Under the probabilities in (c) the expected growth rate of the firm is 8%. How come the valuation in part (c) is different from the valuation in part (a)?
In: Finance
The real risk-free rate of interest is 3.1%. Inflation is expected to be 5% this year and 6% during the next 2 years. Assume that the maturity risk premiums is zero. What is the yield on 1-year treasury securities? Write your answer as a percent (do not type the % character - if your answer is 8.8% write 8.8 in the answer).
In: Finance
Foto Company makes 50,000 units per year of a part it uses in the products it manufactures. The cost per unit of this part is shown below: direct materials .............. $13.00 direct labor .................. 10.10 variable overhead ............. 6.50 allocated fixed overhead ...... 8.60 total ......................... $38.20 An outside supplier has offered to sell Foto Company 50,000 of these parts for $31.60 per unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin earned on this other product would be $120,000 per year. Calculate the selling price per unit charged by the outside supplier that would make Foto economically indifferent between making and buying the part.
In: Accounting
Find the duration of a 3-year bond with annual coupon payments of $80 and a par
value of $1,000. The current market price of the bond is $950.25. If the YTM of
the bond dropped by 1%, what would happen to the bond price?
NOTE: please help especially on the duration part
In: Finance
Eric, who is single with no dependents, has the following for the calendar year 2018:
RECEIPTS FOR YEAR
Salary as Walmart greeter $ 16,200
Interest from Friendly Bank 2,236
Interest from City of Chula Vista 2,000
Dividends from U.S. corporations 69
Social Security benefits 18,000
EXPENDITURES FOR YEAR
Contribution to IRA 920
Unreimbursed medical expense 1,200
Home mortgage interest 3,400
State income and property taxes 3,200
Charitable contributions of cash 5,400
Tax preparation fee 175
Eric claims two exemptions.
How much is Eric’s adjusted gross income?
Assuming your answer to “1” was $22,000, how much is Eric’s taxable income?
Based on your answer to “2”, how much is Eric’s federal income tax?
*SHOW WORK*
In: Accounting