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
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Determine whether the $2.45 difference in the market prices between the call and put options is consistent with the put-call parity relationship for European-style contracts.
See attachment for question Footnote 14The addition of another security to a portfolio will not always reduce portfolio risk. Total variance will be improved only if the correlation of the new asset and the existing portfolio is less than the ratio of the smaller standard deviation divided by t
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/
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
In the wake of the Enron scandal, shareholders are tightening the screws on audit committees. After reviewing the Enron article, 1) What does "tightening the screws on audit committees" mean? 2) Why are audit committees being targeted? See the attached file.
The current price of a stock is $33, and the annual risk-free rate is 6%. A call option with a strike price of $32 and with 1 year until expiration has a current value of $6.56. What is the value of a put option written on the stock with the same exercise price and expiration date as the call option?
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
A put option and a call option with an exercise price of $85 and three months to expiration sell for $3.15 and $6.12 respectively. If the risk free rate is 4.8% per year, compounded continuously, what is the current stock price?
1-Calculate the lower bound price of a European put with an exercise price of $40, an underlying price of $36, and three months to expiration. The risk-free rate is 4 percent. 2-A 40 call has a price of $2.35 and a 40 put has a price of $5.25. The 90-day T-bill rate is 3.20 percent and both the call and put option contracts e
Suppose you believe that Bennett Environmental's stock price is going to increase from its current level of $33.32 sometime during the next 7 months. For $284.00 you could buy a 7-month call option giving you the right to buy 100 shares at a price of $29 per share. If you bought a 100-share contract for $284.00and Bennett's stoc
Identify potential financial statement fraud schemes by using the Apollo Shoes Casebook. Describe the types of evidence you would look for to determine whether fraud is occurring. Write a business brief of 1050 words that outlines how you will use the substantive procedures for detecting irregularities in cash, accounts payable,
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?
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
You mentioned that "while a simple mathematical transposition that is material to the financial statements should be uncovered by an auditor more easily, the same cannot be said for fraud." How does an auditor determine what will be considered material to the financial statements? How would the materiality of a fraud impact th
1. Performance objective: (a) How do companies use financial derivatives to manage some of their risks? (b) Identify several types of derivatives. (c) Why use an options contract rather than a forward contract? (d) Why let a put option expire; why exercise a call option? (e) Are swap agreements traded internationa
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.
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
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
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.
Firm A is likely to be the target in a takeover attempt by Firm B. The stock price is likely to rise over the next few weeks as the takeover progresses, but if it fails, the stock price of A is likely to fall even more than the rise. What option strategy might exploit this information? Please describe the answer in detail.
You are planning to trade on the fortunes of a biotech firm that has a drug patent pending FDA approval. If the patent is approved, the stock price is expected to go up sharply. If it is not approved the stock will go down sharply. In your view, it is unlikely to move more than 20% in either direction. Describe a portfolio combi
The current price of a stock is $20 . In 1 year, the price will be either $26 or $16. The annual risk -free rate is 5%. Find the price of a call option on the stock that has a strike price of $21 and that expires in 1 year. (Hint: Use daily compounding.)
8-6 The current price of a stock is $20 . In 1 year, the price will be either $26 or $16. The annual risk -free rate is 5%. Find the price of a call option on the stock that has a strike price of $21 and that expires in 1 year. (Hint: Use daily compounding.)
Provide real life examples of the use of a call option in risk management and a put option in risk management.
Read the following statements: Critics say that because real options don't expire according to contract as financial options do, managers can't be counted on to pull the plug on a project (exercise an abandonment option) when they should. Also, projects assume lives of their own, and may not be easy to kill. Do you agree
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
Your Aunt Jemima has a $100,000 investment portfolio comprising some bonds and 200 EnCana shares. At the time the portfolio was formed (two months ago), the shares were worth $12,782 and the bonds were worth $87,218. Today, EnCana shares are worth $44.20 per share, while the bond yields have decreased so that the bonds are now w
1. Explain why selecting a target senior debt rating is a reasonable approach to choosing a capital structure. Explain why a target senior debt rating of single- A is a prudent objective when there is only a very limited new issue market for non-investment-grade debt, and when investor willingness to purchase triple-B-rated deb
A stock option plan and the impact an effective compensation program has on a company. The induced conversions of convertible bonds. The proportional method to record stock warrants issued with other securities Preferred stock and how it differs from common stock The difference in par value and no par value stock The proportional method.
Please help me explain the following in laymen's terms - and I need to be brief. A stock option plan and the impact an effective compensation program has on a company. The induced conversions of convertible bonds. The proportional method to record stock warrants issued with other securities Preferred stock and how it