Questions from Corporate Finance

Q: Use the option quote information shown here to answer the questions that

Use the option quote information shown here to answer the questions that follow. The stock is currently selling for $83. a. Are the call options in the money? What is the intrinsic value of an RWJ C...

Q: Use the Black–Scholes model for pricing a call, put

Use the Black–Scholes model for pricing a call, put–call parity, and the previous question to show that the Black–Scholes model for directly pricing a put can be written as follows: P = E × e–Rt ×N(–d...

Q: A stock is currently priced at $50. The stock will

A stock is currently priced at $50. The stock will never pay a dividend. The risk-free rate is 12 percent per year, compounded continuously, and the standard deviation of the stock’s return is 60 perc...

Q: Suppose Sunburn Sunscreen and Frostbite Thermalwear in the previous problems have decided

Suppose Sunburn Sunscreen and Frostbite Thermalwear in the previous problems have decided to merge. Because the two companies have seasonal sales, the combined firm’s return on assets will have a stan...

Q: You purchase one call and sell one put with the same strike

You purchase one call and sell one put with the same strike price and expiration date. What is the delta of your portfolio? Why?

Q: What are the key differences between leasing and borrowing? Are they

What are the key differences between leasing and borrowing? Are they perfect substitutes?

Q: Assume that the tax rate is 35 percent. You can borrow

Assume that the tax rate is 35 percent. You can borrow at 8 percent before taxes. Should you lease or buy? You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanne...

Q: What is the duration of a bond with two years to maturity

What is the duration of a bond with two years to maturity if the bond has a coupon rate of 7 percent paid semiannually, and the market interest rate is 5 percent?

Q: The sales budget for your company in the coming year is based

The sales budget for your company in the coming year is based on a quarterly growth rate of 10 percent with the first-quarter sales projection at $225 million. In addition to this basic trend, the sea...

Q: In the previous problem, assume the risk-free rate is

In the previous problem, assume the risk-free rate is only 5 percent. What is the risk-neutral value of the option now? What happens to the risk-neutral probabilities of a stock price increase and a s...