Finance

Solution Library


Calculation of WACC based on Common Equity and Current Market Values

Question A company has a capital structure that consists of $7 million of debt, $2 million of preferred stock, and $11 million of common equity, based upon current market values. The yield to maturity on its bonds is 7.4%, and investors require an 8% return on the company’s preferred and a 14 ... Read More

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Calculating Standard Deviation Based on Correlation Coefficients

Question Your eccentric aunt has left you $50,000 in Alcan shares plus $100,000 cash. Unfortunately, her will requires that the Alcan stock not be sold for one year and that $60,000 cash must entirely be invested in T-bills with $40,000 in any one of the other three stocks shown in the Table below. ... Read More

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Graph of Standard Deviation with Correlation Coefficient

Question Consider two stocks: ABC and XYZ with the following information   ABC XYZ Mean Return 8% 20% Standard Deviation 10% 35%   Draw the efficient frontier of portfolios if (a) the correlation coefficient is 0.4, and (b ... Read More

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Comparison of HDI of a Country for the Year 2016

Question Pick a country from each of the categories of very high HDI, high HDI, medium HDI and low HDI and present the values of HDI for the year 2016. Your answer should include the values of all indicators of HDI. Also, for each country mention a new index that’s not part of HDI. Based o ... Read More

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Profit or Loss to a Short Forward Position MCQ

Question The current price of a stock is $42. The stock does not pay dividends.  A 3-month forward contract on this stock is priced at $44. What is closest to the profit or loss to a SHORT forward position if the spot price of the stock rises to $45 on the expiration date? (a)  &nbs ... Read More

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Derivative Positions in Hedging a Stock MCQ

Question You have a SHORT position in XYZ stock.  You are worried about the possibility of this position losing money.  Which of the following derivative positions would be least helpful in hedging your short position in XYZ stock?  (a)        Long ... Read More

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Payoff from a Long Position in the Call Option MCQ

Question XYZ is a stock currently priced at $106 and does not pay a dividend.    Consider a one year call option with strike price $105.  What is closest to the payoff from a long position in the call option if the stock price rises to $109 in one year? (a)   &nb ... Read More

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Stock Value Closest to the Price of a One Year Call MCQ

Question XYZ is a stock currently priced at $100 that does not pay a dividend.   Assume further that the annual effective interest rate is 4% (i.e., $100 loaned today will return $104 one year from now), and that a 1-year put option with strike price $106 is priced at $8.  What is cl ... Read More

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Price of a One Year Forward Contract on Stock MCQ

Question XYZ stock is priced at $100. The continuously compounded dividend yield on the stock is 3%.  The continuously compounded interest rate is 5%.  Which is closest to the price of a 12-month forward contract on XYZ stock? (a)        $99 (b) & ... Read More

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Price of a One year Forward Contract on Stock MCQ

Question XYZ is a stock currently priced at $100.  It is anticipated that XYZ will pay a special dividend of $5.25 in 1 year.  Assume further that the annual effective interest rate is 5% (i.e., $100 loaned today will return $105 one year from now).  What is closest to the price of a ... Read More

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Graph PAYOFF function of Stock and to find Common Derivative

Question XYZ stock is currently trading at $100.  The one-year effective interest rate is 5% ($1 lent today yields $1.05 one year from now).  A one year put with strike price $105 is priced at $5. Suppose you buy one put for $5, buy one share for $100, and borrow $100. Graph the PAYOFF ... Read More

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Calculation of Forward Price of a Stock that Pays no Dividend

Question Consider a stock that pays no dividend trading at $100.  Suppose one-year call options with strike prices of $95, $100, $105, and $110 can be bought for a premiums of $16.41, $12, $9, and $7.24 respectively.  Suppose the annual effective interest rate is 5% (i.e., a $100 bond pay ... Read More

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