Questions from General Finance


Q: Jack Blair, the treasurer of the Simpson Corporation (SC)

Jack Blair, the treasurer of the Simpson Corporation (SC) will need to borrow $1 million for three months starting December 20. He would like to hedge the borrowing rate with interest futures contract...

See Answer

Q: You invest one-third of your wealth in each of three

You invest one-third of your wealth in each of three stocks. The expected return and standard deviation of each individual stock is 10 percent and 20 percent, respectively. Each stock has a pairwise c...

See Answer

Q: Motoran Inc. is contemplating the acquisition of a competitor, Tortoran

Motoran Inc. is contemplating the acquisition of a competitor, Tortoran Corp., for $25 million. Motoran’s market value is $40 million, whereas that of Tortoran is $20 million. Motoran expects that aft...

See Answer

Q: You own a $1.5 million diversified portfolio of stocks

You own a $1.5 million diversified portfolio of stocks that you will have to sell in three months’ time to finance the purchase of a house. Fearing that the stock market might go down significantly ov...

See Answer

Q: Return to the WTM case in the chapter where it is said

Return to the WTM case in the chapter where it is said that WTM could hedge its exposure to the price risk of copper by purchasing a call option for $336 that would give it the right to buy one ton of...

See Answer

Q: Lannion Co. is a manufacturing firm with no debt outstanding.

Lannion Co. is a manufacturing firm with no debt outstanding. It is considering bor- rowing $25 million at 8 percent and using the proceeds to buy back shares. Its equity market value is $100 million,...

See Answer

Q: The Global Chemical Company (GCC) uses the following criteria to

The Global Chemical Company (GCC) uses the following criteria to make capital investment decisions: 1. Effect on earnings per share (must be positive) 2. Payback period (must be less than six years) 3...

See Answer

Q: A 3-month European call option on VHQ shares trades at

A 3-month European call option on VHQ shares trades at $5. Its exercise price is $50 and the stock price is currently $50.50. a. Using the put-call parity relationship, calculate the price of a put on...

See Answer

Q: The board of the PQS Corporation has decided to give its employees

The board of the PQS Corporation has decided to give its employees 5 million of 4-year at-the-money call options on PQS stock. If the options are exercised, the company will issue new shares. There ar...

See Answer

Q: The American Food Corporation (AFC) and the Canadian Mining Corporation

The American Food Corporation (AFC) and the Canadian Mining Corporation (CMC) are considering a merger whose objective is to reduce the volatility of their combined assets. AFC assets are worth $100 m...

See Answer