Gary Levin is the chief executive officer of Mountainbrook Trading Company. The board of directors has just granted Mr. Levin 20,000 at-the-money European call options on Mountainbrook's stock, which is currently trading at $50 per share. Mountainbrook's stock pays no dividends. The options will expire in 4 years, and the annual
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A company is considering a project with the following data: Initial Cost = $500,000 Cost of Capital = 12% Risk Free Rate = 5% Cash Flows occur for 3 years according to the following: Demand Probability Annual Cash Flow High .30 $270,000 Average
Using the case study Rick Thompson’s Stock Investment: Options (9A99N009): How do the three proposed option strategies compare? Why might you choose one strategy versus another?
1. A zero-cost forward on Intel stock with maturity in three months has a strike price of $26.86. The annual riskfree interest rate is 4%. Assuming no arbitrage opportunities, what is the current price of Intel stock? 2. A company pays quarterly dividends. The next dividend is due tomorrow, and it is expected to be $1. The
1. Why do financial mangers have difficulty applying CAPM in decision making? What benefits does CAPM provide them? 2. Explain why assets must be evaluated in a portfolio context
How much compensation expense should Austin recognize in 2005 as a result of the option granted to Ross?
On July 1, 2005 Austin Company granted Harry Ross, an employee, an option to buy 500 shares of Austin common stock at $30 per share. The option was exercisable for five years from the date of the grant. Ross exercised his option on October 1, 2005 and sold his shares on December 2, 2005. The quoted market prices for Austin co
1. Use the Black-Scholes Model to find the price for a call option with the following inputs: (1) current stock price is $30, (2)excise price is $35, (3) time to expiration is 4 months, (4)annualized risk-free rate 5%, AND (5) variance of stock return is 0.25. 2. The current price of a stock is $15. In 6 months, the price
A Calculate the exercise value of the warrants if the price of the underlying stock is $40. b. How much would an investor likely be willing to pay for the warrant over and above its exercise value ? Why? c. Would the investor likely be willing to pay more or less for the warrant if the stock had a beta of 1.0? Why? d. Is a warrant more similar to a call option or a put option? Why? e. Why might an investor prefer to buy warrants rather than the underlying stock?
Orne Corporation issued bonds with detachable warrants several years ago. Each warrant allows the holder to purchase one share of stock at $30 per share. The stock has a beta of 1.6. a Calculate the exercise value of the warrants if the price of the underlying stock is $40. b. How much would an investor likely be willing
1. For question 1 refer specifically and directly to attached Mclean c 2 2. For question 2 refer specifically and directly to attached Mclean c 3 We Will provide a rating after evaluation of responses 1. Explain how managed care contracts change agents' incentives to control costs. What agency costs are eliminated
Find the Black-Scholes price for a Six month call option Euro100,000, strict price of $1.00/Euro100. Current Exchange Rate $1.25/Euro100. US risk free rate is 5% and Euro risk free is $4. Volatility of underlying asset is 10.7% I come up with Ce = .63577. Wondering if I'm correct. Thanks!
Swaps and Interest Rate Options - What is an interest rate swap? - How do you immunize using interest rate swaps? - What is a comparative advantage in credit market? - What is a currency swap? - What are interest rate collars, swaptions, and interest rate options? Swap Pricing - How swaps are priced? - How
The short article below concerns the firing of the CFO of a local hospital. What do you think about this story, especially what it infers about the responsibility of the CFO? Also, what is your opinion of the financial issues brought out in the story? Write a brief paragraph or two of 150 words total or less using MS word to c
Can you give me some very brief answers to my questions? Option Pricing - What is the law of one price? - How do you determine lower and upper bounds? - How do you use put-call parity? - What is the binomial option-pricing model? - How do you calculate option premiums using the binomial pricing model and put-call par
Please review the attached questions and help provide simple answers. 1. Assume that C&G Corporation acquires a 40% interest in an affiliate for $500 and accounts for this investment using the equity method. The affiliate reports the following summary balance sheet on the date of the acquisition:
Need help with the attcahed questions with respect to the attached 10k. --- 1. HP reports income tax expense of $699 million in its 2004 income statement and describes its income tax expense in Note 12 (pp. 121-124). a. The company reports that it increased its valuation allowance for deferred tax assets by $47 million. Wha
Please review the attached questions and 10k. I need simple, two line explanations for each. 1. HP provides disclosures related to its pension plans in Note 15 (pp. 129-135). Please answer the following questions based on your reading of this footnote. With respect to only the US Defined Benefit plans and only in 2004, pleas
1. Using the HP income statement on P85, a. Compute NOPAT for 2004 (4). NOPAT=Operating Income - Tax For Year 2004 NOPAT = $4,227-$699 = $3,528 million 2. Referring to HP's balance sheet (p 86), a. Compute HP's net operating assets (NOA) and net financial obligations (NFO) for 2004. (Hint: the computation is simpl
3. HP describes is pending litigation in note 17 (pp 136-143). Under what conditions can HP avoid recognition of these pending liabilities in its financial statements? 4. In its statement of stockholders' equity (p. 88), HP reports a cumulative translation adjustment (CTA) of $22 million, up from $2 million in 2003. a. Ass
Attached are 6 questions that I am struggling to answer. I am looking for quick bullet point answers and explanations on NOPAT / Operating Expense / Cash Flows and analyst issues. Please use the HP 10k for data. --- 1. Using the HP income statement on P85, a. Compute NOPAT for 2004. b. How would you justify treatin
An analyst is interested in using the Black-Scholes model to value call options on the stock of Ledbetter Inc. The analyst has accumulated the following information: The price of the stock is $33. The strike price is $33 The option matures in 6 months (t=0.50) The standard deviation of the stock's returns is 0.30 and the
Using the Black-Scholes model to determine the option price for the May 35 call for Chaseys as of April 18, 2005. The expiration date for this option was May 18, 2005. The annualized interest rate on a T-bill that matures that same day is 3.0%. Chasey's stock closed at $36. The historic variance for Chasey's is 0.25. Assume
Questions (also attached) 1. Describe the concept of "core earnings" as defined by Standard & Poor. What deficiencies in GAAP is this concept designed to remedy? In one paragraph, give your assessment of the usefulness of core earnings. 2. Describe the meaning of the phrase "quality of earnings" as it is currently used
Question: Calculate the project's risk-adjusted NPV. Should the project be accepted? What if it had a coefficient of variation (CV) of NPV of only 0.15 and was judged to be a low-risk project?
Please see attached files. I need help with part e of section 2. I have no idea on how to decide on the pricing and financing: e. This report should clearly identify the following: 1) Your proposed acquisition terms 2) Price 3) Financing 4) Potential negotiation strategies I can calculat
Use monthly price data for the last ten years (ending June 2004) on the Kellogg Company: http://edgarscan.pwcglobal.com/servlets/getCompanyDetail?Name=KELLOGG+CO and the ten year average annual return on 10-year treasury constant maturity rate bonds. Apply the Black-Scholes option pricing model to find the value of a call
See the attachment for the problem.
Problem 2. Bond and Stock Values This problem has three parts. 2a. A certain bond has a face (par) value of $10,000.00 and pays a coupon of $100 annually. The current rate of interest on similar bonds is 12%. The bond is a 10 year maturity. What is a fair price for the bond in the bond market?
This project is about volatility smiles in options markets. I need to collect recent two years' daily or weekly data and generate the volatility smiles, discuss the changes and explain why those changes have taken place. I have done some reading and writing on the literature side of the volatility smiles but I still have some