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grandymaker [24]
3 years ago
6

A stock S that pays no dividends is currently trading at $30/share. Another stock Q which pays a onetime dividend of $0.5/share

in 3 months from now is currently trading at $10/share. The relevant interest rate is 10% per annum continuously compounded. Furthermore, an exchange option which exchanges 3 shares of Q for 1 share of S after 6 months is currently trading at $5.
Business
1 answer:
SashulF [63]3 years ago
8 0

Answer:

$35.37

Explanation:

This question is complete, the complete question is as follows;

A stock S that pays no dividends is currently trading at $30/share. Another stock Q which pays a onetime dividend of $0.5/share in 3 months from now is currently trading at $10/share. The relevant interest rate is 10% per annum continuously compounded. Furthermore, an exchange option which exchanges 3 shares of Q for 1 share of S after 6 months is currently trading at $5. Please calculate the price of an exchange option which exchange 10 shares of S for 30 shares of Q after 6 months.

Solution;

In this question, we are asked to calculate the price of an exchange option which is exchanging a number of shares of each type of shares in the question for a duration of six months

To solve this problem, we proceed as follows;

The prepaid forward price of S is $ 30. The time-0 prepaid forward price for the delivery of 1 share of Q after 6 months is = 10 – 0.5 e^-(0.1×0.25)= $ 9.512345

By generalized put-call parity,

c[S(0), Q(0), 0; 2, 0.5] – p[S(0), Q(0), 0; 3, 0.5] = 30 – 3 × 9.512345

p[S(0), Q(0), 0; 3, 0.5] = 5 – 30 + 3 × 9.512345 = $ 3.537035

Therefore the price of an option to exchange 10 shares of S for 30 shares of Q is $ 35.37035

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alexgriva [62]

Answer:

A. 8.15

Explanation:

WACC is the firm's weighted average cost for the capital that is employed from different sources which includes common equity, preferred equity and debt.

In order to calculate WACC, the weighted average cost of each capital is added, so the formula becomes:

WACC = (E x %E) + (D x (1 - Tax) x %D) + (PE x %PE)

E = Common equity

D = Debt

PE = Preferred equity

%E = Common equity / total capital

%D = Debt / total capital

%PE = Preferred equity / total capital

Tax = Tax rate

<em>Interest on debt is a tax deductible expense therefore the interest rate is taken after accounting for tax in order to calculate WACC.</em>

<u>Calculation:</u>

Using the above formula we can calculate WACC

WACC = (11.25% x 55%) + (6.5% x (1-40%) x 35%) + (6% x 10%)

WACC = 0.0815 or 8.15%

7 0
3 years ago
How much is the sales tax on $19.50 worth of goods if the tax rate is 7%? $2.79 $0.14 $1.37 $0.28
exis [7]

Answer:

1.37

Explanation:

=19.50x7

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4 0
2 years ago
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mote1985 [20]

Answer:

The correct option of this question is (B). Explanation of this answer is given below in the explanation section

Explanation:

(B) is Correct Option:

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Why other options are not correct

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Answer:

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2. In second scenario, businesses are prosecuted for contaminating river water, rises in manufacturing prices and vendors will be able to produce worse at the same amount. The output curve then shifts for its left.

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