Managerial Finance final - Solutions

Managerial Finance final - Solutions - .A 6-month put...

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.A 6-month put option on Makler Corp.'s stock has a strike price of $47.50 and sells in the market for $8.90. Makler's current stock price is $41.00. What is the exercise value of the option?Answer $6.10 $7.30 $6.50 $6.05 $6.45 Lissa Co.'s stock price is currently $26.75. A 6-month call option on Lissa's stock has a strike price of $25 and has an expected volatility of 40% (i.e., expected standard deviation = 40%). The risk-free rate is 6%. According to the Black-Scholes option pricing model, what is the value of the option?Answer $5.05 $4.45 $5.27 $4.28 $3.25 If one U.S. dollar buys 1.46 Canadian dollars, how many U.S. dollars can you purchase for one Canadian dollar?Answer 0.7123 0.5548 0.6849 0.5685 0.6781 Warren Corporation's stock sells for $42 per share. The company wants to sell some 20- year, annual interest, $1,000 par value bonds. Each bond would have 75 warrants attached to it, each exercisable into one share of stock at an exercise price of $47. The firm's straight bonds yield 10%. Each warrant is expected to have a market value of $4.00 given that the stock sells for $42. What coupon interest rate must the company set on the bonds in order to sell the bonds-with-warrants at par?Answer 5.89% 6.74% 6.48% 5.63% 8.03% Operating leases often have terms that include: maintenance of the equipment by the lessor. full amortization over the life of the lease. very high penalties if the lease is cancelled. restrictions on how much the leased property can be used. much longer lease periods than for most financial leases.
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Which of the following statements is most CORRECT?Answer A.Preferred stock generally has a higher component cost of capital to the firm than does common stock. B. By law in most states, all preferred stock must be cumulative, meaning that the compounded total of all unpaid preferred dividends must be paid before any dividends can be paid on the firm's common stock. C. From the issuer's point of view, preferred stock is less risky than bonds. D. Whereas common stock has an indefinite life, preferred stocks always have a specific maturity date, generally 25 years or less. E. Unlike bonds, preferred stock cannot have a convertible feature. Which of the following statements concerning risk management is NOT CORRECT? Answer A. Risk management can reduce the volatility of cash flows, and this decreases the probability of bankruptcy. B. Risk management makes sense for firms directly engaged in activities that involve commodities whose values can be hedged, and it doesn't make much sense for most other firms. C. Companies with volatile earnings pay more taxes than more stable companies due to the treatment of tax credits and the rules governing corporate loss carry-forwards and carry-backs. Therefore, our tax system encourages risk management to stabilize earnings. D.
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Managerial Finance final - Solutions - .A 6-month put...

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