You believe that oil prices will be rising more than expected, and that rising prices will result in lower earnings ta industrial companies that use a lot of petroleum-related products in their operations. You also believe that the effects on this sector will be magnified because consumer demand will fall as oil prices rise. You locate an exchange traded fund, QLT, that represents a basket of industrial companies. You don't want to short the ETF because you don't have enough margin in your account. QLT is currently trading at $32.19. You decide to buy a put option (for 100 shares) with a strike price of $33.50, priced at $2.29. What is your profit if you are wrong anc the price of XLB increases to $35.50 on the expiration date? (Click on the icon here in order to copy the contents of the data table below into a spreadsheet) QLT: Materials-$32.19 Calls $33.50 Strike Expiration Price Strike Expiration BES $31.00 November $1.26 $31.00 November November $1.26 Puts $33.50 November Price $2.58 $2,29 If you are wrong and the price of XLB increases to $35.50 on the expiration date, the profit S (Round to the

You are an Acquisition Offer for an Investment Bank. You work in the High- Tech Investment Division of the Investment Bank. You understand high tech companies come and go very quickly. You also understand that the technology changes so quickly that a long-term forecast can be worthless very quickly. It is a changing market. You have been offered the opportunity to acquire a Silicon Valley based high tech company. You must decide if you recommend making the acquisition. You have been told that you must operate with a 6.0% WACC. You have decided that you will make your recommendation based upon a four-year forecast.                                                          The Company:   The company, MERCO, makes processing chips for Intel. MERCO has signed two contracts with Intel. The first expires in two years and pays the company an annual amount of $1,924,261 and $2,212,900 for each year. The second contract was signed because Intel was happy with the work MERCO had done for it. The…

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Investment advisors recommend risk reduction through international diversification. International investing allows you to take advantage of the potential for growth in foreign economies, particularly in emerging markets. Janice Wong is considering investment in either Europe or Asia. She has studied these markets and believes that both markets will be influenced by the U.S. economy, which has a 21% chance for being good, a 52% chance for being fair, and a 27% chance for being poor. Probability distributions of the returns for these markets are given in the accompanying table. Return Rates in Europe: Good, 10%; Fair, 4%; Poor, -3% Return Rates in Asia: Good, 24%; Fair, 4%; Poor, -18% a. Find the expected value and the standard deviation of returns in Europe and Asia. (Round intermediate calculations to at least 4 decimal places and final answers to 2 decimal places.)

QuickBank has decided to lower the interest rate it charges on business loans in order to attract more business. It has succeeded in boosting the number of loan applications, but it finds that many of the applicants turn out to be very poor credit risks. This illustrates the problem known as adverse selection moral hazard the principal-agent porblem diversification

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You recently found out that when the market is in recession, ALL assets seem to suffer from some degree of liquidity problems as there are less trades than usual, and thus it is hard to sell an asset without losing some of its fair value. So, you concluded that at least some portion of liquidity risk must be systematic in nature and therefore it must be compensated by the market. To verify this, you cut the market portfolio in half by the illiquidity measure developed by Amihud (2002) [So that you have one relatively liquid portfolio and one relatively illiquid portfolio. Assume that this measure is reliable.] and calculated the market liquidity risk premium as follows: Market liquidity risk premium = Expected return on the illiquid portfolio - Expected return on the liquid portfolio = [E(RIL) - E(RL)] Then you formed 5 portfolios from the entire market based on liquidity (Amihud measure) and estimate the factor loading β (called liquidity beta) of each portfolio using [RIL - RL] as…

Which of the following limits the market from becoming a fully efficient market?   New information takes time to process. Obtaining new information is costly. The existence of closed end investment companies. Both a. and b. are correct. All of the above answers are correct. None of the above answers is correct.

If a firm plans to issue new stock, flotation costs (investment bankers' fees) should not be ignored. There are two approaches to use to account for flotation costs. The first approach is to add the sum of flotation costs for the debt, preferred, and common stock and add them to the initial investment cost. Because the investment cost is increased, the project's expected rate of return is reduced so it may not meet the firm's hurdle rate for acceptance of the project. The second approach involves adjusting the cost of common equity as follows: Cost of equity from new stock = r, D1 +8 Po(1-F) The difference between the flotation-adjusted cost of equity and the cost of equity calculated without the flotation adjustment represents the flotation cost adjustment. Quantitative Problem: Barton Industries expects next year's annual dividend, D1, to be $1.90 and it expects dividends to grow at a constant rate g = 4.3%. The firm's current common stock price, Po, is $25.00. If it needs to issue…

What comment or conclusion can be made about this?   Large amounts of national debt can lead to higher interest rates and lower stock prices. Stocks are a reflection of investor confidence. If those investors lose confidence in where those companies operate then their stock price will take a hit.