# Financial Management Chapter 7

Satisfactory Essays
358 Words
Grammar
Plagiarism
Writing
Score
Financial Management Chapter 7
Fall 2013 Corporate Financial Management Due: Thursday, October 31st Chapter 7 & Options

1. Assume that you sold a 100 call for \$10. Calculate your profit/loss per share if the future stock prices are \$80, \$90, \$100, \$110. What type of investor (bullish or bearish) sell a call? Why?

2. Assume that you bought a 110 put for \$11. Calculate your profit/loss per share if the future stock prices are \$ \$90, \$100, \$110, \$120. What type of investor (bullish or bearish) buy a put? Why?

3. If a stock splits 5 for 3 how would the exchange adjust a put option contract with \$80 as the exercise price?

4. If a stock splits 1 for 2 how would the exchange adjust a put option contract with \$70 as the exercise price?

5. If a stock pays a common dividend of \$2 per share, how would the exchange adjust a 100 call option contract on that stock?

6. A stock is expected to pay no dividends in the next two years. It will pay a dividend of \$2.50 in year three. For years four and five the earnings are expected to increase at the rates of 30% and 25% respectively before settling on a constant growth of 7%.
a. What is current value of this stock if the required rate of return is 12%?
b. What will be the price of this stock at the end of year one from today?
c. What will be the dividend yield and capital gain yield for years 1 & 6?
d. Why are investors interested in knowing the distribution of return into dividend and capital gain components?

7. Calculate the last dividend paid on a stock that is priced at \$25 per share. Its beta is 1.1, risk free rate is 2.5%, and the market risk premium is 8.2%. The dividends are expected to grow at a constant rate of 7% forever.

8. Based on the corporate valuation model, Bizzaro Co.'s value of operations is \$300 million. The balance sheet shows \$20 million of short-term investments that are unrelated to operations, \$50 million of accounts payable, \$90 million of notes payable, \$30 million of long-term debt, \$40

## You May Also Find These Documents Helpful

• Good Essays

3. (TCO D) The Ramirez Company's last dividend was \$1.75. Its dividend growth rate is expected to be constant at 25% for 2 years, after which dividends are expected to grow at a rate of 6% forever. Its required return (rs) is 12%. What is the best estimate of the current stock price? a. \$41.58…

• 967 Words
• 4 Pages
Good Essays
• Good Essays

According to ValueLine estimates in Figure 1, James River’s expected an­nu­al dividend growth rate from the 91–93 to 97–99 period is 5.50%, and the next dividend (1995) is expected to be \$0.60. Assume that the re­quired return for James River was 8.36% on January 1 1995 and that the 5.50% growth rate was expected to continue indefinitely.…

• 1426 Words
• 6 Pages
Good Essays
• Satisfactory Essays

Assume Evco, Inc., has a current price of \$50 and will pay a \$2 dividend in 1 year,…

• 709 Words
• 3 Pages
Satisfactory Essays
• Satisfactory Essays

(TCO D) A stock just paid a dividend of D0 = \$1.50. The required rate of return is rs = 10.1%, and the constant growth rate is g = 4.0%. What is the current stock price?…

• 942 Words
• 4 Pages
Satisfactory Essays
• Satisfactory Essays

Assume the following information for bonds A and B. Both bonds have the same YTM and have semi-annual coupon payments. Bond B is currently selling at par.…

• 1154 Words
• 5 Pages
Satisfactory Essays
• Good Essays

b. A new common stock issue that paid a \$1.81 dividend last year. The firm’s dividends are expected to continue to grow at 7.2% per year forever. The price of the firm’s common stock is now \$27.28…

• 2436 Words
• 10 Pages
Good Essays
• Satisfactory Essays

Using the rate of return above, what should be the current share price of AirJet Best Parts, Inc. if the company maintains a constant 1% growth rate in dividends and the most recent dividend per share paid on the stock was \$1.50? Show your calculations. (10 pts)…

• 358 Words
• 2 Pages
Satisfactory Essays
• Satisfactory Essays

A company paid \$0.76 in cash dividends per share. Its earnings per share is \$4.48 and its market price per share is \$26.50. Its dividend yield equals (Round you answer to 2 decimal places.):…

• 6905 Words
• 80 Pages
Satisfactory Essays
• Satisfactory Essays

\$1,000*1.1= \$1,100, but I will only receive \$10,000 in year 2 so the old stockholders are left with \$10,000-\$1,100= \$8,900…

• 594 Words
• 3 Pages
Satisfactory Essays
• Satisfactory Essays

1. K.I. Airlines paid an annual divided of \$1.18 a share last month. The company is planning on paying \$1.50, \$1.75, and \$1.80 over the next three years, respectively. After that, the dividend will be constant at \$1.50 per share per year. What is the market price of this stock if the market rate of return is 10.5 percent?…

• 1906 Words
• 8 Pages
Satisfactory Essays
• Good Essays

The dividend policy form the company is that the dividend keeps increasing from \$0.56 in 2009 to \$1.03 in 2012. The average growth rate in 5 years is 12.5%, but in the next five years, the predicted growth rate will decrease to 9.5% and the dividend paid will keep the same or small decrease. On the one hand, the company already has a high price which may has limited growth rate, so the dividend will not increase. On the other hand, the future is not sure and the dividend trend will keep the same based on the estimated stable company performance.…

• 406 Words
• 2 Pages
Good Essays
• Good Essays

An index currently stands at 696 and has a volatility of 30% per annum. The risk-free rate of interest is 7% per annum and the index provides a dividend yield of 4% per annum. Calculate the value of a three-month European put with an exercise price of 700.…

• 372 Words
• 2 Pages
Good Essays
• Powerful Essays

you to stop writing you must do so immediately. If you do not abide by this instruction…

• 2255 Words
• 10 Pages
Powerful Essays
• Satisfactory Essays

now, consider the payoff from writing one call option and buying H shares of the stock, where Cu − Cd uS0 − X H= = uS0 − dS0 uS 0 − dS0 the value of this investment at expiration is Up Down Payoff of stock HuS0 HdS0 Payoff of calls –(uS0 – X) 0 Total payoff HdS0 HdS0…

• 960 Words
• 4 Pages
Satisfactory Essays
• Better Essays

If we assume that the dividends do not change over time we can use the following formula.…

• 2342 Words
• 10 Pages
Better Essays