Derivatives Question and Answers

8) What would BV's 1988 earnings per share be after all of the above adjustments?

a.) If you were to sell that same amount of stock in a few years at $55.12 per

* b.Assume the firm’s stock now sells for $20 per share. The company wants to sell some 20-year, $1,000 par value bonds with interest paid annually. Each bond will have attached 50 warrants, each exercisable into 1 share of stock at an exercise price of $25. The firm’s straight bonds yield 12%. Assume that each warrant will have a market value of $3 when the stock sells at $20. What coupon interest rate, and dollar coupon, must the company set on the bonds with warrants if they are to clear the market? (Hint: The convertible bond should have an initial price of $1,000.)

3. They charged a higher than fair price in the Secondary Market. They sold the issue slowly in order to maintain the premium.

5. EverGrow corporation has a beta of 1.10 just paid a dividend of $1.35. The risk-free

Other things held constant, which of the following actions would increase the amount of cash on a company's balance sheet?

price is $25 per share. The most recent dividend was $1 and the growth rate is 5%.

B) How well has Berkshire Hathaway performed? In the aggregate? In its investment in Scott & Fetzer? In its investments in earlier purchases of GEICO stock? In its investments in convertible preferred securities?

2) Put option to sell British pounds for $1.40/£ expiring in March with a premium of $.0155/£.

* There will be 4 outcomes with the ‘in the money’ and ‘out of money’ positions and high and low sales volume (30000 or 10000).

Question 2: Assume that Jim is subject to a $5,000,000 position limit. What position should he take to exploit the mispricing for the March '86 MMI futures?

stock price of $6.50, and a volatility of 40% (as indicated in the assignment question), yields values of

d) If Tyler is estimating a gross profit margin, or contribution margin, of 40 percent, how much of the receivables balance must actually

e)The analysts at the brokerage house have a current rating of Hold on the shares.

19. A company has a quick ratio greater than 1. All else constant, which of the following transactions will increase a firm’s quick ratio?