PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 11, Problem 10PS
a)
Summary Introduction
To determine: Present value of total copper output.
b)
Summary Introduction
To determine: Expected price of copper at the end of 1 year
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On the London Metals Exchange, the price for copper to be delivered in one year is $5,500 a ton. (Note: Payment is made when the
copper is delivered.) The risk-free interest rate is 2% and the expected market return is 8%.
a. Suppose that you expect to produce and sell 10,000 tons of copper next year. What is the PV of this output? Assume that the sale
occurs at the end of the year.
Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.
b-1. If copper has a beta of 1.2, what is the expected price of copper at the end of the year?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
b-2. Assume copper has a beta of 1.2. What is the certainty-equivalent end-of-year price?
X Answer is complete but not entirely correct.
53.92 million
per
ton
a. Present value
b-1. Expected price
b-2. Certainty-equivalent price
$
$
IS
6,383.38
5,937
per
ton
Suppose that the spot price of a Canadian dollar is U.S. $0.89 and that the exchange rate has a volatility of 7% per year. Risk-free interest rates are 6% in the U.S. and 4% in Canada.
Calculate the price of a 6-month European call option to buy one Canadian dollar for U.S. $0.89. Express your answer in terms of the cumulative normal distribution function, N(x), as in the answers to question 16 in part 1.
What is the price of a 6-month option to buy U.S. $0.89 for one Canadian dollar?
Please show all your work! Thank you SO much
A) It is now January. The current interest rate is 5% per annum annual compounding. The June future price for gold is $1846.30, while the December future rice is $1860.00. Find a strategy to explore the arbitrage opportunity.
B) Suppose that the spot price of the euro is currently $1.5 USD. The one-year futures price is $1.55 USD. Is the interest rate higher in the United States or the euro zone? Justify your answer.
C) OneAsx has just introduced a single-stock futures contract on Arandex stock, a company that currently pays no dividends. Each contract calls for delivery of 1,000 shares of stock in one year. The T-bill rate is 6% per year annually compounded and Arandex stock currently sells at $120 per share. If the Arandex price drops by 3%, what will be the change in the future price and the change in the investors’ margin account who has a long position in one contract?
Chapter 11 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 11 - Capital budgeting process True or false? a. The...Ch. 11 - Capital budgeting process Explain how each of the...Ch. 11 - Capital budgeting process Draw up an outline or...Ch. 11 - Prob. 4PSCh. 11 - Biased forecasts Look back to the cash flows for...Ch. 11 - Prob. 6PSCh. 11 - Prob. 7PSCh. 11 - Prob. 8PSCh. 11 - Market prices Suppose the current price of gold is...Ch. 11 - Prob. 10PS
Ch. 11 - Prob. 11PSCh. 11 - Prob. 12PSCh. 11 - Prob. 13PSCh. 11 - Economic rents True or false? a. A firm that earns...Ch. 11 - Prob. 16PSCh. 11 - Economic rents Thanks to acquisition of a key...Ch. 11 - Prob. 18PSCh. 11 - Prob. 19PSCh. 11 - Prob. 20PSCh. 11 - Prob. 21PSCh. 11 - Prob. 22PSCh. 11 - Economic rents Taxes are a cost, and, therefore,...Ch. 11 - Prob. 1MCCh. 11 - Libby Flannery, the regional manager of Ecsy-Cola,...
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