Example 5 Year Treasury Bond
Assume that the Treasury issued a 5 year maturity bond yesterday, with semiannual interest, at a coupon rate of 5%.
Assume the bond has a face value of $100.
Assume that today, the interest rate on similar bonds has gone to 5.
CALL OPTION TRANSACTIONS: ASSUME NO TRANSACTION COSTS
1. Short sells option to Long (option price=$2, strike price=$50, current stock price=$50)
Time 1: Assume that current stock price=$54. Option will be exercised.
Price-Weighted Average (like Dow 30)
Beg Index Index
Price weighted average:
Example: Repurchase Agreement
Assume that Bank A has $100 million to lend and Bank B wants to borrow $100 million and has a $100 million Treasury bond to pledge as collateral.
Assume that the repurchase agreement has a rate of 0.10% (10 basis points). Thi
McDonalds Call Options Priced as of 1/06/11, when stock price is $74.32
CALLS Expiring 1/21/2011
NIKE Case Study
1) Calculate the book value cost of capital. Show your calculations in your submission and
explain why you used the values you did.
a) The cost of capital
b) Debt - We calculated the proportion of the debt and equity based on the values in