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Options

Put Option of Investors

An investor buys a stock for $36. At the same time a 6 month put option to sell the stock for $35 is selling for $2. a) What is the profit or loss from purchasing the stock if the price of the stock is $30? $35? $40? b) If the investor also purchases the put (ie. Construct a protective put), what is the combined cash ou

Financial Liabilities and Assets

Holder Ltd purchased a option contract for issuer Ltd that gave Holder Ltd the right to acquire 100,000 options in Torquay Ltd for a price (exercise price) of $10,000 per share. When the contract was exchanged, the price of Torquay Ltd shares were $9 each. The option entitles Holder Ltd to exercise the options and buy the share

It's about options: puts and calls

Luke's quandary: to hedge or not to hedge A little more than 10 months ago, luck, a mortgage banker in phoenix, bought 300 shares of stock at $40 per share. Since then, the price of stock has risen to 75 per share. It is now near the end of the year, and the market is starting to weaken. Luc feels there is still plenty of play

Call option on Bedrock Boulders stock has a market price of $7

A call option on Bedrock Boulders stock has a market price of $7. The stock sells for $30 a share, and the option has an exercise price of $25 a share. What is the exercise value of the call option? b. What is the options time value? Use the following income statements and balance sheets to calculate Garnet Inc.'s free cash

Effect of Correlation on the Portfolios Returns

The correlation between stocks A and B is 0.50, while the correlation between stocks A and C is -0.5. You already own stock A and are thinking of buying either stock B or stock C. If you want your portfolio to have the lowest possible risk, would you buy stock B or C? Would you expect the stock you choose to affect the return th

Entrepreneur Options for an Exit Strategy

What options do entrepreneurs have for an exit strategy as their venture become promising, and what are the considerations they must take into account for the various options? List the various options that entrepreneurs have for exit strategies, i.e., to leave the business and recoup their investment. Give an explanation of

Corporate Finance Conversions

1) Find the conversion (or stock) value for each of the $1,000-par-value convertible bonds described in the following table. Convertible Conversion Ratio Current Market Price of Stock A 25 $42.25 B 16 $50.00 C 20 $44.00 D 5 $19.50 2) On attachment 3) Carol Krebs is considering buying 100 shares of Soo

Define a non zero-sum situation and a zero-sum situation.

Define a non zero-sum situation and a zero-sum situation. What are some strategies for a successful or neutral outcome in a zero-sum negotiation? If win-win negotiations are easier to conduct if both parties trust each other, how can you build trust in negotiations? In 200 words How does decreased communication contribute t

Determine the fair value of stocks in the given cases.

1. Computerplus company already paid a $6 dividend per share this year and expects dividends to grow 10% annually for the next four years and 7% annually thereafter. Compute the Price of the companies stock (Note: the required rate of return on this stock is 11%). 2. The chairman of World Food Corporation announced that the f

Market Put Price and Arbitrage-Free Put Price

See the attached files. Chapter 10 A European call option and put option on a stock both have a strike price of $60 and an expiration date in six months. Currently, call price is $15 and put price is $14. The risk-free interest rate is 7% per annum, the current stock price is $57 and a $1.50 dividend is expected in 4 months.

Continuous compounding, gain or loss, equivalent rate

1. An interest rate is 12.5% per annum expressed with continuous compounding. What is the equivalent rate with semiannual compounding? 2. A trader sells 100 European put options (1 contract) with a strike price of $51 and a time to maturity of six months. The price received for each option is $3. The price of the underlying

Special Issues in Valuation

Excel Spreadsheet Incorporate an employee stock option (ESO) into a company's valuation. For the company Google Inc., incorporate the effect of the employee stock option (ESO) plan into the common equity valuation. Be sure to consider both the forecast ESO grants and outstanding ESOs. Perform your valuation in Excel; use ap

Abbott Labs Bond Issues; Forecasted Prices of Capital Stock

1. In the past, Abbott Labs had two bond issues outstanding with the following characteristics: Issue Interest Rate Maturity Current Price A 6% 2008 115 B 6% 2012 118 a) Which issue, A or B, has the higher effective rate of interest? How can you tell? b) Assume that the bonds of both issues have face values of $1

Comparing Two Stocks: Arithmetic Mean & Annual Rate of Return

During the past five years, you owned two stocks that had the following annual rates of return: Year Stock T Stock B 1 17.0% 7.0% 2 6.0% 2.0% 3 -10.0% -8.0% 4 -1.5% 1.5% 5 14.0% 5.0% a. Compute the arithmetic mean annual rate of return for each stock. Which stock is most desirable by this mea

Strategies Presented to the Client to Achieve their Goals

Mr. Jones is a 53 year old owner/manager for a large food processing company that is worth $75 million. He has amassed a personal fortune that is worth $48 million, invested as follows: 20% in fixed income/interest bearing securities, 45% in cash equities (stocks), 15% in real estate a 20% in cash. His stock holdings are mostly

Culture and Distribution

See the attached file. Compare and contrast the distribution decisions of multinational corporations PepsiCo and Nestle in India. In particular conduct research and identify significant cultural issues which would be relevant to the development of those strategies. References: http://www.businessweek.com/magazine/content/

External Financing options for a US MNE Company

Please describe each of the below options for a U.S. MNE looking to get external financing in the U.S. for an overseas Greenfield project. The topics that must be examined are: Bonds, bank notes, effective tax rates, preferred equity and common equity should be addressed in your paper. Agency costs should be addressed r

Hedging futures and options

A U.S. based MNC expects to receive royalty payments totaling £1.25 million next month. It is interested in protecting these receipts against a drop in the value of the pound. It can sell 30 day pound futures at a price of $1.6513 per pound or it can buy pound put options with a strike price of $1.6612 at a premium of 2.0

The article that I have selected is called, "More pro-employee law on the way?" It talks about how once elected, President Obama became absorbed into healthcare reform, but was expected to begin work on enacting more pro-employee laws. According to the article, "The legislation covers areas that include paid sick leave, union membership, sexual orientation discrimination, age bias, predispute arbitration agreements, and health and safety issues." (Greenwald, 2010) The article also notes that in 2010 there were 27 different pieces of legislation proposing changes to federal law affecting just about every aspect of the employer-employee relationship. While much focus was aimed at the healthcare reform, many believe that it is important that pro-employee laws are needed. Valerie Hoffman expects the federal agencies to take "a vigorous approach to employment issues that will continue to put the pressure on employers nationwide." While there might not be action in Congress, "I think it'll be substantial in regulation," she said (Greenwald, 2010). I think that focusing on employee laws is important. I think that in a place of employment, employees are entitled to feeling safe, secure, and free from different forms of harassment and discrimination. By putting a national focus on new laws I think it would help employers to better understand the importance of protecting employees under such laws, as well as the repercussion for not doing so.

The article that I have selected is called, "More pro-employee law on the way?" It talks about how once elected, President Obama became absorbed into healthcare reform, but was expected to begin work on enacting more pro-employee laws. According to the article, "The legislation covers areas that include paid sick leave, union

Use of stock options for a company; success and future risks

Think of a company, e.g., your own company or another company such as Wal-Mart, Apple, or American Airlines, and give a specific example of a real option that the company adopted in the past or might use in the future. If in the past, was it successful? If in the future, what are the risks involved?

Fundamentals of Investments

1. A client has asked you about hedging his production of soybean oil. He expects to sell 360,000 pounds of soybean oil in four months. Soybean oil contracts are available at 60,000 pounds per contract. How could he hedge his position? A. Buy 6 contracts. B. Sell 7 contracts. C. Buy 7contracts. D. Sell 6 contra

Explain differences between Future and Forward Contracts

What is the "closing out" of a position in the futures markets? Why is closing out of a contracts permitted in the futures markets? Why is unilateral transfer or sale of the contract typically not allowed in forward markets? Please incorporate two high quality references and discuss answers in detail.

Various Multiple Choice Questions

1. Simonyan Inc. forecasts a free cash flow of $40 million in Year 3, i.e., at t = 3, and it expects FCF to grow at a constant rate of 5% thereafter. If the weighted average cost of capital is 10% and the cost of equity is 15%, what is the horizon value, in millions at t = 3? 1. $882 2. $972 3. $1,021 4. $840 5. $92

Options and real options for a gold mine

In a gold mine, the price of gold is a major determinant of the value of the project. a. When the price of gold drops, what real option in the mine may be exercised? b. When the price of gold rises, what real option in the mine may be exercised?? c. If the volatility of gold increases and all else remains the same, is i

Options strategy for change in market volatility

If you take the view that volatility will drop over the next three months and then increase thereafter, what options strategy would you like to execute? Would the value of this portfolio today be positive or negative? Please discuss answer in detail.

Analyzing Strategy Using Option Analysis

Reliable Industries is considering the construction of a power plant investment in India. Reliable analysts calculate that the cost of building the plant is $600 million, and the IRR of the plant is 13%. The analysts also estimate that given the experience of building the first plant, a second plant can be built for $550 million