Questions from Corporate Finance

Q: Suppose that top executives of XYZ are told they will receive at

Suppose that top executives of XYZ are told they will receive at-the-money call options on 10,000 shares each year for the next 3 years. When granted, the options have 5 years to maturity. XYZâ&...

Q: Suppose you sell a 40-strike put with 91 days to

Suppose you sell a 40-strike put with 91 days to expiration. What is delta? If the option is on 100 shares, what investment is required for a delta-hedged portfolio? What is your overnight profit if t...

Q: Suppose you observe the prices {5, 4, 5,

Suppose you observe the prices {5, 4, 5, 6, 5}. What are the arithmetic and geometric averages? Now you observe {3, 4, 5, 6, 7}. What are the two averages? What happens to the difference between the t...

Q: Suppose the effective semiannual interest rate is 3%. a.

Suppose the effective semiannual interest rate is 3%. a. What is the price of a bond that pays one unit of the S&P index in 3 years? b. What semiannual dollar coupon is required if the bond is to sell...

Q: There is a single debt issue. Compute the yield on this

There is a single debt issue. Compute the yield on this debt assuming that it matures in 1 year and has a maturity value of $127.42, 2 years with a maturity value of $135.30, 5 years with a maturity v...

Q: : Suppose that copper costs $3.00 today and the

Suppose that copper costs $3.00 today and the continuously compounded lease rate for copper is 5%. The continuously compounded interest rate is 10%. The copper price in 1 year is uncertain and copper...

Q: Suppose the gold spot price is $300/oz, the

Suppose the gold spot price is $300/oz, the 1-year forward price is 310.686, and the continuously compounded risk-free rate is 5%. a. What is the lease rate? b. What is the return on a cash-and-carry...

Q: You have a project costing $1.50 that will produce

You have a project costing $1.50 that will produce two widgets, one each the first and second years after project completion. Widgets today cost $0.80 each, with the price growing at 2% per year. The...

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

Let S = $100,K = $95, r = 8%, T = 0.5, and δ = 0. Let u = 1.3, d = 0.8, and n = 1. a. Verify that the price of a European put is $7.471. b. Suppose you observe a put price of $8. What is the arbitrage...

Q: The price of a 6-month dollar-denominated call option

The price of a 6-month dollar-denominated call option on the euro with a $0.90 strike is $0.0404. The price of an otherwise equivalent put option is $0.0141. The annual continuously compounded dollar...