1. A company enters into a short futures contract to sell $5000. The current future price is 250 cents per pound. The initial margin is $3000 and the maintenance margin is $2000. What price change would lead to a margin call? Under what circumstances $1500 could be withdrawn from the margin account? 2. Stock is expected to pay a dividend of Tk 10 per share in 2 months and again in 5 months. The stock price is Tk 500 and risk free rate of interest is 8% p.a. with continuously compounded for all
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operating cash flows. III. Financing activities have been increasingly important for this firm’s operations‚ at least in the short run. B. II and III only 9. All else the same‚ an ______ style option will be ______ valuable than a ______ style option. A. American‚ more‚ European 10. An American put option gives its holder the right to _________. C. sell the underlying asset at the exercise price on or before the expiration
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financing: leasing‚ convertible bonds‚ convertible preferred stock‚ and warrants. The basic features‚ costs‚ and advantages of these financing methods are discussed. The basic types of leases (operating and financial)‚ leasing arrangements‚ and legal aspects of leasing are presented‚ as well as the procedure used to analyze a lease versus purchase decision. The student learns how to evaluate convertible securities and stock-purchase warrants. The use and features of stock options are presented. The chapter
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STRATEGIC FINANCIAL MANAGEMENT REVISION 1. Selling Currency Call Options. Mike Suerth sold a call option on Canadian dollars for $.01 per unit. The strike price was $.76‚ and the spot rate at the time the option was exercised was $.82. Assume Mike did not obtain Canadian dollars until the option was exercised. Also assume that there are 50‚000 units in a Canadian dollar option. What was Mike’s net profit on the call option? ANSWER: Premium received per unit = $.01 Amount per unit
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• What is credit default swap (CDS)? What is a credit derivative index? Credit Default Swap: It is an OTC Credit Derivative. (Provides protection against specific credit events) [pic] ▪ [pic] [pic] Total return swap: (provides protection against loss of value irrespective of cause). Two parties enter an agreement whereby they swap periodic payment over the specified life of the agreement. One party makes payments based upon the total return—coupons
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ll bonds have a face value of $100. Given the yields to maturity of the i) 1‐year 13% coupon bond‚ ii) 2‐year 11.5% coupon bond and iii) 3‐year 9% coupon bond are 10%‚ 9.5% and 9% respectively. Compute f(1‚2)‚ the interest rate of a 1‐year bond in 2 years’ time. Correct Answer: 7.88% Question: Suppose that all investors expect that interest rates on a 1‐year bond for the next 4 years will be as follows: Today interest rate for a 1‐year bond = 5% Forward rate for a 1‐year bond in 1 year = 7%
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1/1/14‚ the stockholders adopted a stock option plan for top executives whereby each might receive rights to purchase up to 18‚000 shares of common stock at $40 per share. The par value is $10 per share. 2. On 2/1/14‚ options were granted to each of five executives to purchase 18‚000 shares. The options were non-transferable and the executive had to remain an employee of the company to exercise the option. The options expire on 2/1/16. It is assumed that the options were for services performed equally
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of an in the money call option is always Answer equal to zero. positive. negative. equal to the stock price minus the exercise price. None of these is correct. 1 points Question 2 The intrinsic value of an out-of-the-money put option is equal to Answer the stock price minus the exercise price. the put premium. zero. the exercise price minus the stock price. None of these is correct. 1 points Question 3 Use the Black-Scholes Option Pricing Model for
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000‚000x0.99) 9‚900‚000 Discount on bond payable 100‚000 Bond payable 10‚000‚000 Unamortized bond issue cost 70‚000 Cash 70‚000 2. Cash (10‚000‚000x0.98) 9‚800‚000 Discount on bond payable 600‚000 Bond payable 10‚000‚000 Paid in capital -stock warrants 400‚000 3. Debt conversion expense 75‚000 Bond payable 10‚000‚000 Discount on bond payable 55‚000 Common stock
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from the company. Firms generally issue stock warrants for raising money through equity and is usually offered at a lower price in comparison to stock options. There is no lock-in period for buying a warrant and one is free to make their choices. In fact‚ warrants are worthless once they expire. There are generally 2 types of stock warrants: o Call warrant which guarantees the right to purchase a set number of shares at a given price
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