Finance

ARM Co. is experiencing a period of rapid growth. Earnings and dividends are expected to

grow at a rate of 8% during the next three years, and then at a constant rate of 4% thereafter.

ARM’s last dividend, which has just been paid, was Ksh2 per share. If the required rate of

return on the stock is 12%, calculate the price of the stock today

grow at a rate of 8% during the next three years, and then at a constant rate of 4% thereafter.

ARM’s last dividend, which has just been paid, was Ksh2 per share. If the required rate of

return on the stock is 12%, calculate the price of the stock today

Finance

An investor purchases a stock for $28 and a put on the stock for $0.40 with a strike price of $24. She also sells a call on the same underlying stock for $0.40 with a strike price of $30 and with the same expiration date. What is the value of her portfolio, net of the proceeds from the options, if the stock price ends up at $35 on the expiration date?

Finance

Suppose that the stock of the company CFAA is currently trading on April 15 at a price of $70. A call option with a strike price of $70 and an expiration date on October 15 is trading at $4. What is your profit if the stock price at expiration date is $80? Remember that each option contract is for 100 shares.

How to calculate ND1 and ND2

ii) Determine the price of a European put option on a non-dividend paying stock when the stock price is sh. 69, the strike price is sh. 70, the risk-free rate is 5% per annum, the volatility is 35% per annum, and the time to maturity is three months?

a) Distinguish between warrants and convertible securities

Finance

b) Your company wishes to raise a new debt capital on stock market. Your managing director has heard of warrants and traded options and suggests that an issue of debt, accompanied by either attached warrants or traded options might be attractive to investors and have benefits for your company.

Required:

Discuss whether you consider your managing director’s suggestions to be useful.

Required:

Discuss whether you consider your managing director’s suggestions to be useful.

Finance

Mr Shahrezza expected return from an investment are as follows: RM 80,000 per year for the first five years, RM 10,000 at the year end of 6 and RM 100,000 at the end of year 7. If the interest rate is at 8%, what is the present value of the cash flows by today?

Finance

25) Your firm is one of the largest bakery’s in the area. As part of your risk management process, you are considering using options to hedge the price risk on your biggest input – wheat. You have determined that a price of R52/per ton would allow for you to keep the same profit margin as last year. The following wheat options offer a strike price of R50/per ton expiring in 1 month:

Call options on wheat are selling at a premium of R0.87 per ton.

Put options on wheat are selling for R0.72 per ton.

(a) Given the information above, will you need a call or a put option?

(b) If each option is for 100 tons, and you require 1000 tons of wheat, demonstrate the outcome if, at expiry, the spot price of wheat is (i) R40 per ton and (ii) R60 per ton.

Call options on wheat are selling at a premium of R0.87 per ton.

Put options on wheat are selling for R0.72 per ton.

(a) Given the information above, will you need a call or a put option?

(b) If each option is for 100 tons, and you require 1000 tons of wheat, demonstrate the outcome if, at expiry, the spot price of wheat is (i) R40 per ton and (ii) R60 per ton.