Questions from Corporate Finance

Q: Suppose all possible investment opportunities in the world are limited to the

Suppose all possible investment opportunities in the world are limited to the five stocks listed in the table below. What are the market portfolio weights?

Q: Suppose the corporate tax rate is 40%. Consider a firm that

Suppose the corporate tax rate is 40%. Consider a firm that earns $1000 before interest and taxes each year with no risk. The firm’s capital expenditures equal its depreciation expenses each year, and...

Q: Kohwe Corporation plans to issue equity to raise $50 million to

Kohwe Corporation plans to issue equity to raise $50 million to finance a new investment. After making the investment, Kohwe expects to earn free cash flows of $10 million each year. Kohwe currently h...

Q: You are long two calls on the same share of stock with

You are long two calls on the same share of stock with the same exercise date. The exercise price of the first call is $40 and the exercise price of the second call is $60. In addition, you are short...

Q: Dynamic Energy Systems stock is currently trading for $33 per share

Dynamic Energy Systems stock is currently trading for $33 per share. The stock pays no dividends. A one-year European put option on Dynamic with a strike price of $35 is currently trading for $2.10. I...

Q: You happen to be checking the newspaper and notice an arbitrage opportunity

You happen to be checking the newspaper and notice an arbitrage opportunity. The current stock price of Intrawest is $20 per share and the one-year risk-free interest rate is 8%. A one-year put on Int...

Q: Express the position of an equity holder in terms of put options

Express the position of an equity holder in terms of put options.

Q: Below is an option quote on IBM from the CBOE Web site

Below is an option quote on IBM from the CBOE Web site. a. Which option contract had the most trades today? b. Which option contract is being held the most overall? c. Suppose you purchase one option...

Q: You own a call option on Intuit stock with a strike price

You own a call option on Intuit stock with a strike price of $40. The option will expire in exactly three months’ time. a. If the stock is trading at $55 in three months, what will be the payoff of th...

Q: Assume that you have shorted the call option in Problem 2.

Assume that you have shorted the call option in Problem 2. a. If the stock is trading at $55 in three months, what will you owe? b. If the stock is trading at $35 in three months, what will you owe? c...