Problem: Amortizing a Mortgage and the Effect on the Financial Statements On January 1, 2011, Picard Inc. purchased a new piece of equipment from LeForge Engineering to expand its produc
____ 28. Here are the expected returns on two stocks: Returns Probability X Y 0.1 -20% 10% 0.8 20 15 0.1 40 20 If you form a 50-50 portfolio of the two stocks, what is the portfolio's standard deviation? a. 16.5% b. 10.5% c. 13.4% d. 8.1% e. 20.0%
Assume you hold a well balanced portfolio of common stocks. Under what conditions might you want to use a stock index (of ETF) option to hedge the portfolio? a) Briefly explain how such options could be used to hedge a portfolio against a drop in the market. b) Discuss what happens if the market does, in fact, go down c) What
The FASB in SFAS No. 123, "Accounting for Stock-Based Options." encourages (but does not require) companies to recognize compensation expense based on the fair value of stock options awarded to their employees and managers. Early drafts of this proposal required the recognition of the fair value of the options. But the FASB met
I need help with the attached. 1. Securities which could be classified as held-to-maturity are a. redeemable preferred stock. b. warrants. c. municipal bonds. d. treasury stock. 2. Unrealized holding gains or losses which are recognized in income are from securities classified as a. held-to-maturity. b. available-for
9 On average, the market compensates investors for taking a. Nondiversifiable, aka market risk b diversifiable risk c. Firm-specific risk d. None of the above 11 Since approximately 1900, historical evidence suggests that investing in common stocks has resulted in relatively high average annual returns with a. Rela
Pastore Inc. granted options for one million shares of its $1 par common stock at the beginning of the current year. The exercise price is $35 per share, which was also the market value of the stock on the grant date. The fair value of the options was estimated at $8 per option. 42. (1) What would be the total compensation indi
A stock when it is first issued provides funds for a company. Is the same true of an exchange-traded stock option? Discuss. Explain the link between options, futures and forward contracts. Explain why a futures contract can be used for either speculation or hedging.
I have attached an excel file to see the problem better. XX Corp. had $900,000 net income in 2004. On January 1, 2004 there were 220,000 shares of common stock outstanding. On April 1, 20,000 shares were issued and on September 1, Birney bought 30,000 shares of treasury stock. There are 30,000 options to buy common stock at $
6.Which one of the following characteristics of preferred stock would make the stock resemble a liability? A)The preferred stock is callable. B)The preferred stock is convertible. C)The preferred stock has warrants attached. D)The preferred stock is noncumulative. E)The preferred stock is participating. 7.On Januar
1. A portfolio consists of a T-bill with a face amount of $10,000 and 200 shares of Camel Corp stock priced at $60 a share. The T-bill matures after 1 yr, and its yield is 9.4%. The expected return on the stocks is 16%, with sigma of 22%. Find E(Rp) and σ(Rp) of the portfolio. The answer is E(Rp) = 13.15%, σ(Rp)= 12.49%.
1. What are the different types of alternative investment vehicles? 2. Which one is the most preferable? Why? 3. What are derivatives? 4. How can they be used to manage a portfolio? Would you personally use derivatives in your portfolio? Why or Why not? (at least 350 words).
Explain what options are and some of their uses. What is the difference between financial options and other kinds of options? What are real options, and what are they used for?
I need some assistance on the following questions. Does international diversification enhance risk reduction? Why or why not? What measures can be taken to reduce the risks of international portfolio investing?
1. If an individual investory buys and sells existing stocks through a broker, these are primary market transactions. a. True b. False 2. A call provision gives bondholders not bond issuers the right to demand, or "call for," repayment of a bond. Typically, calls are exercised if interest rates rise, because when rat
A. Suppose you buy 10 contracts of the Feb 110 call option. How much will you pay, ignoring commissions. b. In part (a), suppose that Macrosoft stock is selling for $1.40 per share on the expiration date. How much is your options investment worth? What if the terminal stock price is $125?
Use the options quote information shown here to answer the questions that follow. The stock is currently selling for $114. Calls Puts Option and NY Close - Expiration -Strike Price - Vol. Last - Vol. Last Macrosoft Feb 110
As part of a Type A reorganization, a creditor swaps an old bond with a basis of $700 and a principal of $1000 for a new convertible bond with a value of $750 and a principal of $1,200. The low value is due to the lack of security and low coupon rate. What is the bondholder's realized and recognized gain on the reorganization? W
Option strategies-bull spread using European call options, bear spread using European put options, butterfly spread using European call options, butterfly spread using European put options, straddle using options, strangle using options
Suppose that the price of a non-dividend-paying stock is $42, its volatility is 35%, and the risk-free rate for all maturities is 6% per annum. Use Derivagem (Analytic European) to calculate the cost of setting up the following positions. Assume Tree Steps = 100. In each case provide a spreadsheet showing the relationship betwee
I need help with the following accounting questions. Chapter 5 1. When accounting for land transactions, a gain is reported by the ______ ______ of the land, even though the transaction occurred between related parties. a. original buyer b. original seller c. escrow attorney d. third party e. parent company 2. The effe
Using Yahoo Finance, take a look at the five year chart for Wal-Mart. Using this chart and other information you can find on this company, write a two-page paper answering the following question: - What do you think the futures price of 100 shares of Wal-Mart to be delivered to you in one year be right now? - Do you exp
On April 30, 2009, the common stock of Minnesota Mining and Manufacturing ("3M") closed at a price of $57.60 per share. On that same date, the July 2009 $55 Calls on 3M common closed at a price of $4.90. a) The premium on this in-the money Call can be understood in terms of two value components. Describe briefly and quantif
Question 1: Assume the following information: U.S. deposit rate for 1 year = 11% U.S. borrowing rate for 1 year = 12% New Zealand deposit rate for 1 year = 8% New Zealand borrowing rate for 1 year = 9% New Zealand dollar forward rate for 1 year = $.40 New Zealand dollar spot rate = $.39 Also assume that a U
Conduct an initial country risk analysis for each country (India and Brazil)in your selected scenario. Include the following risk analyses: a. Translation exposure (Brazil and India) b. Socio-economic (Brazil and India) Based on your analyses, describe the appropriate techniques and procedures for mitigating the risks yo
Dear Brainmass, I am having some difficulty with this problem. I would really appreciate the assistance when you get the chance. Thank you in advance for taking the time to review my post. The following information is presented for Make Believe Company. 1. In the year 2000, 800,000 shares of $10 par value common stock
What would be the implications of hedging by (a) selling 8 contracts (b) selling 10 contracts, and (c) selling 12 contracts of September wheat? At what price would you receive a margin call? What is the forward contract worth at that time? If the risk-free interest rate is 10 percent verify that put-call parity holds. Assuming continuous compounding, is the contract correctly priced if the risk-free rate is 5.96 percent and the dividend yield on the index is 2.75 percent?
1. A farmer anticipates having 50,000 bushels of wheat ready for harvest in September. What would be the implications of hedging by (a) selling 8 contracts (b) selling 10 contracts, and (c) selling 12 contracts of September wheat? 2. The crude oil futures contract on the NYMEX covers 1,000 barrels of crude oil and is quoted i
Please choose the correct answer. 1. The concept of flexibility in the law is best illustrated by: a. The use of precedent to decide similar cases in similar ways. b. The ability to overturn precedent when it is no longer valid or when it is erroneous. c.
Create a covered call position using an option contract. What is the payoff to this position if it is closed out at expiration when the stock is selling for $85? Construct a butterfly spread. What is the gain or loss if, at expiration, the underlying security sells for exactly $303? Suppose you buy 100 shares of ABC at $79.25 and simultaneously write a March 80 Straddle at the prices given below. Make a spreadsheet and draw a profit/loss diagram Explain why writing covered calls and writing puts are generally equivalent strategies. Construct a call bull spread using the May contracts.
** See ATTACHED file for all details! ** 1. Suppose you buy 100 shares of ABC at $70. Create a covered call position using an option contract with a strike price of $80 currently selling at $3.00. Make a spreadsheet and draw a profit/loss diagram and label all significant points for this strategy. What is the payoff to this
Boone Securities buys a $100,000 par value, June Treasury bond contract on Chicago Board of option trading at 106 14/32. A. What is the dollar value of the contract? B. There is an initial margin requirement of $2,565 and a margin maintenance requirement of $1,900. If an interest rate increase causes the bond contract to
1) Consider a stock currently selling for $80. It can go up or down by 15% per period. The risk-free rate is 6%. Use a one period binomial model. You want to price a European call option with exercise price of $84. a. Determine the two possible stock prices at expiration. b. Construct two portfolios with equivalent payoffs. On
1. What are the major functions of derivative markets in the economy? What are some ways in which derivatives can be misused? 2. Explain the difference between an American option and a European option. What do they have in common? Questions 3-5 use the information found in the following table from the CBOE for optio