Give an example of an asset that would be logical to use the straight line depreciation method, and why. Then provide an example of an asset where it is more appropriate to use an accelerated method and why.

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15

Dec1. A zero cost forward on Intel stock with maturity in three months has a strike price of $26.86. The annual riskfree interest rate is 4%. Assuming no arbitrage opportunities, what is the current price of Intel stock?

2. A company pays quarterly dividends. The next dividend is due tomorrow, and it is expected to be $1. The dividends decrease by 1% every quarter. The annual cost of equity for the stock ( ) is 10%. What is the stock price?

3. If insiders with private information are able to obtain abnormally high returns, this represents a contradiction to the semi strong version of the Efficient Market Theory. True or False? Please explain.

4. A bond has a face value of $1,000, coupon rate of 8% (annual payments), yield to maturity of 7%, and maturity in 100 years. What is this bond s duration?

Hint: Calculate the bond s price. If the yield changed to 7.1%, how would the price change?

5. The current price of Caterpillar stock is $68.5. The annual standard deviation of the stock returns is 18%. The annual risk free interest rate is 5%. What is the value of a European Put option on Caterpillar stock with a strike price of $72 and maturity in 2.5 years?

15

Dec
Categories: General Questions

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15

Dec
Categories: General Questions

Comments Off

15

Dec
Categories: General Questions

Comments Off