Chapter 14. Residual Dividends Residual Dividend -2011 Net Income $15.0 Million -2012 Net Income increase by 8% -Capital structure 35% Debt‚ 65% Equity -2011 paid $3.0 million cash dividends -2012 invest a major capital project; capital budget for the project is $12.0 million 1. Cash dividends 2012: 3‚000‚000 x (1+0.08) = 3‚000‚000 x 1.08 = 3‚240‚000 payout in 2012 2. Dividend Payout ratio 2012 (8%):
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Pg 324. Question # 8 A legal and binding contract between a bond issuer and the bondholders. The indenture specifies all the important features of a bond‚ such as its maturity date‚ timing of interest payments‚ method of interest calculation‚ callable/convertible features if applicable and so on. The indenture also contains all the terms and conditions applicable to the bond issue. Other critical information included in the indenture are the financial covenants that govern the issuer and the formulas
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Business and Economics University of Hong Kong Dr. Tao Lin Chapter Outline Options and basic insurance strategies Spreads and collars: bull and bear spreads; box spreads; ratio spreads; collars Speculating on volatility: straddles; butterfly spreads; asymmetric butterfly spreads 2 Long / Short Call / Put Options 3 Strategies: Based on Price Directions & Volatility Movements The simple call and put options reflect the following views on the price directions. Price to Increase Volatilities
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specifically‚ the position requires the simultaneous sale of one out-of-the-money call and the purchase of a deeper out-of-the-money call‚ as well as the simultaneous sale of one in-the-money call and the purchase of a deeper in-the-money call. All of the options should have the same expiration date‚ with the play typically being established for a net debit. The strategy is suitable in a range bound market which is characterized by levels of higher buying pressure‚ known as a support‚ and higher selling pressure
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Options The holder of an option has the right to buy‚ or sell‚ a specified commodity or financial instrument‚ at a predetermined price‚ on a specified date (European-type option)‚ or throughout a specified period (American-type option). A key word in the definition is ‘right’. The buyer‚ or holder‚ of the option has no obligation to exercise the option. Therefore‚ an option allows a risk manager to protect the downside of a risk exposure while at the same time leaving open the opportunity to gain
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CITIC TOWER II: THE REAL OPTION Suffolk University – FIN- 881 Fall 2014 Name: Abdelrhman El Refaiy Larry Young the Chairman of Citic Pacific Limited has to make a decision to develop a new project under the name Citic Tower II. The development project that will take place in Hong Kong is expected to leave the company with $60 MM in losses as per NPV analysis. Citic’s property development team has set rigid assumptions to build their NPV model that estimated net positive cash inflows at $1.54 billion
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Ans 1: Option A Ans 2: New Required return for HR = 7% + 2*(11% -7%) = 15% New Required return for LR = 7% + .5*(11% - 7%) = 9% So difference is 6% Option E Ans 3: No of stocks = 20 Weight of each stock = 1/20 Beta of portfolio = 1.2 Beta of stock sold = 0.7 Beta of stock bought = 1.4 Hence new portfolio beta = 1.2 -.7/20 + 1.4/20 = 1.2 + .7/20 = 1.235 Option B Ans 4: New Beta = 0.7*1.5 = 1.05 Old required rate of return = 15% So old risk free rate = 15% -5%*.7 =11.5% New Required
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FINS 3635 - Options‚ Futures‚ and Risk Management Techniques: Mock Final May 28‚ 2012 1) Consider a firm with two classes of zero-coupon debt: senior debt and junior debt. Suppose that the firm’s debt securities both mature at time T1 and the senior ranking debt has a face value of X1 and the junior ranking debt has a face value of X2 . The claims of the senior debt holders are paid first‚ before the claims of the junior debt holders‚ who in turn are paid out their claims before the equity holders
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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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rates currently being swapped for three month LIBOR is 12% per annum for all maturities. The three month LIBOR rate one month ago was 11.8% per annum. All rates are compounded quarterly‚ what is the value of the swap? 4. A four month European call option on a non-dividend paying stock is currently selling for $5. The stock price is $64‚ the strike price is $60 and a dividend of $0.80 is expected in one month. The risk free interest rate is 12% per annum for all maturities. What opportunities are there
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