Questions from Corporate Finance

Q: Suppose XYZ stock pays no dividends and has a current price of

Suppose XYZ stock pays no dividends and has a current price of $50. The forward price for delivery in 1 year is $55. Suppose the 1-year effective annual interest rate is 10%. a. Graph the payoff and p...

Q: If Telco does nothing to manage copper price risk, what is

If Telco does nothing to manage copper price risk, what is its profit 1 year from now, per pound of copper that it buys? If it hedges the price of wire by buying copper forward, what is its estimated...

Q: Draw profit diagrams for the following positions: a. 1050

Draw profit diagrams for the following positions: a. 1050-strike S&R straddle. b. Written 950-strike S&R straddle. c. Simultaneous purchase of a 1050-strike straddle and sale of a 950-strike S&R strad...

Q: The S&R index spot price is 1100, the risk

The S&R index spot price is 1100, the risk-free rate is 5%, and the dividend yield on the index is 0. a. Suppose you observe a 6-month forward price of 1135. What arbitrage would you undertake? b. Sup...

Q: Using the information in Table 7.1, a.

Using the information in Table 7.1, a. Compute the implied forward rate from time 1 to time 3. b. Compute the implied forward price of a par 2-year coupon bond that will be issued at time 1.

Q: Suppose you are selecting a futures contract with which to hedge a

Suppose you are selecting a futures contract with which to hedge a portfolio. You have a choice of six contracts, each of which has the same variability, but with correlations of −0.95, −0.75, −0.50,...

Q: Consider the same facts as the previous problem, only now consider

Consider the same facts as the previous problem, only now consider hedging with the 3-month Eurodollar futures. Suppose the Eurodollar futures contract that matures 60 days from today has a price on d...

Q: Using the information about zero-coupon bond prices and oil forward

Using the information about zero-coupon bond prices and oil forward prices in Table 8.9, construct the set of swap prices for oil for 1 through 8 quarters.

Q: Suppose the dollar-denominated interest rate is 5%, the yen

Suppose the dollar-denominated interest rate is 5%, the yen-denominated interest rate is 1% (both rates are continuously compounded), the spot exchange rate is 0.009 $/¥, and the price of a dollar-den...

Q: Repeat the option price calculation in the previous question for stock prices

Repeat the option price calculation in the previous question for stock prices of $80, $90, $110, $120, and $130, keeping everything else fixed. What happens to the initial option ∆ as the stock price...