A stock price is currently $30.During each two-month period for the next four months it will increase by 8% or decrease by 10%. the risk-free interest rate is 5%. use a two-step tree to calculate the value of a derivative that pays off [max(30-St 0)]2, where st is the stock price in four...
Mr Darden sold his house for 165,000. He purchased it for 55,000 9 years ago. What is his annual investment? Coverting a problem into a present value yield. Show formulas and calculations.
Graham Enterprises anticipates that its dividend at the end of the year will be $2.00 a share (i.e., D1 = $2.00). The dividend is expected to grow at a constant rate of 7 percent a year. The risk-free rate is 6 percent, the market risk premium is 5 percent, and the company's beta equals...
A stock is currently $80. It is known that at the end of 4-months it will be either $75 or $85. The risk-free interest rate is 5% per annum with continuous compounding. What is the value of a 4-month European put option with a strike price of $80? Use no arbitrage argument
1. A Ltd. has in issue 6% debentures quoted at R980 cum interest. Calculate the cost of debt, assuming a tax rate of 35%.
You buy a very risky bond that promises an 8.8% coupon and return of the $1,000 principal in 10 years. You pay $500 for the bond. A. you recieve the coupon payment for two years and the bond defaults. After liquidating the firm, the bondholders receive a distribution of $150 per bond at the...
The marketing and accounting departmetns of a company have provided management with the following monthly demand and cost informaiton: P = 1m000 - 1Q TC = 50,000 + 100Q Calculate monthly quantity, price and profit at the short run revenue maximizing output level
A company s sales increased from $600,000 in Year 1 to $850,000 in Year 2. Accounts receivable were $130,000 at FYE Year 1 and $198,000 at FYE Year 2. Approximately how much of the increase in accounts receivable was a result of sales growth?
Slipshod Machine Tool Co. owes $40,000 to one of its suppliers. The supplier has offered a trade discount of 2/10 net 30. Slipshod can borrow the funds from either of two banks: First City Bank will loan the funds for 20 days at a cost of $400; Upstart Bank offers a discounted loan for 20 days...
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1. Can you help me with this valuation problem?: Imagine that you are trying to evaluate the economics of purchasing an automobile. You expect the car to provide annual after-tax cash benefits of $1,200 at the end of each year and assume that you can sell the car for after-tax proceeds of $5,000 at the end of the planned 5-year ownership period. All funds for purchasing the car will be drawn from your savings, which are currently earning 6% after taxes.
- a.Identify the cash flows, their timing, and the required return applicable to valuing the car.
- b.What is the maximum price you would be willing to pay to acquire the car? Explain.
2. How do you calculate the before tax-cost of the Sony bond and the after-tax cost of the Sony bond given the following information?:
- David Abbot is interested in purchasing a bond issued by Sony. He has obtained the following information on the security:
- Sony bond
- Par value $1,000 Coupon interest rate 6% Tax bracket 20%
- Cost $930 Years to maturity 10