Questions from Corporate Finance

Q: Value the M&I stock purchase contract assuming that the 3

Value the M&I stock purchase contract assuming that the 3-year interest rate is 3% and the M&I volatility is 15%. How does your answer change if volatility is 35%?

Q: Construct a four-period, three-step (eight terminal

Construct a four-period, three-step (eight terminal node) binomial interest rate tree where the initial interest rate is 10% and rates can move up or down by 2%; model your tree after that in Figure 2...

Q: Four years after the option grant, the stock price for Analog

Four years after the option grant, the stock price for Analog Devices was about $40. Using the same input as in the previous problem, compute the market value of the options granted in 2000, assuming...

Q: Using the information in Table 4.9 about Scenario C:

Using the information in Table 4.9 about Scenario C: a. Using your answer to the previous question, use equation (4.7) to compute the variance-minimizing hedge ratio. b. Run a regression of revenue o...

Q: Using the information in Table 4.9 about Scenario C:

Using the information in Table 4.9 about Scenario C: a. What is the expected quantity of production? b. Suppose you short the expected quantity of corn. What is the standard deviation of hedged reve...

Q: Compute profit diagrams for the following ratio spreads: a.

Compute profit diagrams for the following ratio spreads: a. Buy 950-strike call, sell two 1050-strike calls. b. Buy two 950-strike calls, sell three 1050-strike calls. c. Consider buying n 950-strike...

Q: Suppose S = $100, K = $95, r

Suppose S = $100, K = $95, r = 8% (continuously compounded), t = 1, σ = 30%, and δ = 5%. Explicitly construct an eight-period binomial tree using the lognormal expressions for u and d:
Compute the p...

Q: Suppose a 10-year zero-coupon bond with a face

Suppose a 10-year zero-coupon bond with a face value of $100 trades at $69.20205. a. What is the yield to maturity and modified duration of the zero-coupon bond? b. Calculate the approximate bond pric...

Q: A default-free zero-coupon bond costs $91 and

A default-free zero-coupon bond costs $91 and will pay $100 at maturity in 1 year. What is the effective annual interest rate? What is the payoff diagram for the bond? The profit diagram?

Q: Suppose that firms face a 40% income tax rate on positive

Suppose that firms face a 40% income tax rate on positive profits and that net losses receive no credit. (Thus, if profits are positive, after-tax income is (1− 0.4) × profit, while if there is a loss...