Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 23, Problem 5CRCT
Summary Introduction
To discuss: The ways in which the volatility of oil and natural gas prices are exposed to a company when they use natural gas as an energy source.
Introduction:
Risk is a buzzword in the market. All the firms encounter different types of risk such as market risk, interest rate risk, basis risk, and price risk. They also face indirect risk due to competition in the market.
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You believe that oil prices will be rising more than expected, and that rising prices will result in lower earnings
for 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 $32.68. You decide to buy a
put option (for 100 shares) with a strike price of $33.90, priced at $2.26. It turns out that you are correct.
At expiration, QLT is trading at $30.05. Calculate your profit. (Click on the icon here in order to copy the
contents of the data table below into a spreadsheet.)
QLT: Materials-$32.68
Calls
Price
Strike Expiration
$30.05 November
$1.26
$33.90 November $1.26
The profit of the trade before trading costs is $
Puts
Expiration…
You believe that all prices will be rising more than expected, and that rising prices will result in lower earnings for 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 $32.49. You decide to buy a put option (for 100 shares) with a strike price of $34.05, priced at $2.22. It turns out that you are
correct. At expiration, QLT is trading at $30.20. Calculate your profit. (Click on the icon here in order to copy the contents of the data table below into
a spreadsheet.)
Calls
Strike Expiration
$30.20 November
$34.05 November
QLT: Materials-$32.49
Price
$1.22
$1.22
come
The profit of the trade before trading costs is $. (Round to the…
global risk factors
What are some examples of global risk factors? What factors
are most prevalent in today’s market? How can one modify investment strategies
to account for such risks? (at least 200 word)
Chapter 23 Solutions
Fundamentals of Corporate Finance
Ch. 23.1 - Prob. 23.1ACQCh. 23.1 - Prob. 23.1BCQCh. 23.2 - Prob. 23.2ACQCh. 23.2 - Prob. 23.2BCQCh. 23.3 - What is a forward contract? Describe the payoff...Ch. 23.3 - Prob. 23.3BCQCh. 23.4 - Prob. 23.4ACQCh. 23.4 - Prob. 23.4BCQCh. 23.5 - Prob. 23.5ACQCh. 23.5 - Prob. 23.5BCQ
Ch. 23.5 - Prob. 23.5CCQCh. 23.6 - What is a futures option?Ch. 23.6 - Prob. 23.6CCQCh. 23 - Keith is preparing a graph that compares the value...Ch. 23 - Prob. 23.3CTFCh. 23 - Prob. 23.6CTFCh. 23 - Prob. 1CRCTCh. 23 - Prob. 2CRCTCh. 23 - Prob. 3CRCTCh. 23 - Prob. 4CRCTCh. 23 - Prob. 5CRCTCh. 23 - Prob. 6CRCTCh. 23 - Options [LO4] Explain why a put option on a bond...Ch. 23 - Prob. 8CRCTCh. 23 - Prob. 9CRCTCh. 23 - Prob. 10CRCTCh. 23 - Prob. 11CRCTCh. 23 - Hedging Exchange Rate Risk [LO2] If a U.S. company...Ch. 23 - Hedging Strategies [LO1] For the following...Ch. 23 - Prob. 14CRCTCh. 23 - Prob. 15CRCTCh. 23 - Prob. 16CRCTCh. 23 - Prob. 1QPCh. 23 - Prob. 2QPCh. 23 - Futures Options Quotes [LO4] Refer to Table 23.2...Ch. 23 - Prob. 4QPCh. 23 - Futures Options Quotes [LO4] Refer to Table 23.2...Ch. 23 - Prob. 6QPCh. 23 - Prob. 7QPCh. 23 - Interest Rate Swaps [LO3] ABC Company and XYZ...Ch. 23 - Prob. 9QPCh. 23 - Prob. 10QPCh. 23 - Prob. 1MCh. 23 - Prob. 2MCh. 23 - Prob. 3MCh. 23 - Prob. 4MCh. 23 - Prob. 5MCh. 23 - Are there any possible risks Joi faces in using...
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