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- Suppose that the last sale of Company X stock was at a price of $50. Further suppose that an investor wishes to place a market order to purchase 25,000 shares of Company X stock. What is the volume weighted average price that the investor will trade at in each of the market? What if the investor purchase 120,000 shares instead 25,000? Market Depth - Market A vs B Market AMarket B#SharesOffer ($)#SharesOffer ($)30,00050.0010,00050.0040,00050.0210,00050.0110,00050.0570,00050.0320,00050.0680,00050.0430,00050.0760,00050.0510,00050.0940,00050.05Prediction Inc.'s perpetual preferred stock sells for $102.50 per share, and it pays an $8.50 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by investors. What is the company's cost of preferred stock for use in calculating the WACC? a. 9.33% b. 8.72% c. 7.26% d. 7.17% e. 8.64%Perpetual preferred stock from Franklin Inc. sells for $97.50 per share, and it pays an $8.50 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by investors. What is the company's cost of preferred stock for use in calculating the WACC? a. 9.44% b. 9.08% c. 9.82% d. 8.72% e. 10.22%
- Preferred stock valuation Jones Design wishes to estimate the value of its out-standing preferred stock. The preferred issue has an $80 par value and pays an annual dividend of $6.40 per share. Similar-risk preferred stocks are currently earning a 9.3% annual rate of return. a. What is the market value of the outstanding preferred stock? b. If an investor purchases the preferred stock at the value calculated in part a, how much does she gain or lose per share if she sells the stock when the required return on similar-risk preferred stocks has risen to 10.5%? Explain(a) Donald is considering the merits of two securities. He is interested in the common shares ofA Co. and B Inc. The expected monthly rate of return of securities is shown below:State of Affair Probability Stock A Stock BBoom 0.1 40% -20%Normal 0.5 20% 8%Recession 0.4 -10% 15%At the time of purchase, the market value is $70/share for A and $50/share for B. Donaldplans to invest 10,000 shares of Stock A and 6,000 shares in Stock B.(i) Compute the portfolio weights of Stock A and Stock B. (ii) Compute the expected returns of Stock A and Stock B. (iii) Assume that the covariance between Stock A and Stock B is -28%2(0.0028). Computethe expected rate of return and variance of rate of return of Donald’s portfolio.(iv) If the risk-free rate is 2%, the market risk premium is 18% and the beta of Stock A is0.75, estimate the required and expected rates of return of Stock A. Should Donaldinvest in Stock A? Show the calculations.Preferred stock valuation Jones Design wishes to estimate the value of its outstanding preferred stock. The preferred issue has a par value of $60 and pays an annual dividend of $6.80 per share. Similar-risk preferred stocks are currently earning an annual rate of return of 7.7%. a. What is the market value of the outstanding preferred stock? b. If an investor purchases the preferred stock at the value calculated in part a, how much does she gain or lose per share if she sells the stock when the required return on similar-risk preferred stocks has risen to 9.3%?
- Boeing (BA) shares currently sell for $330/share. BA expects to pay a $6.85/share dividend in 3-months. The 3-month risk-free rate, compounded continuously, is 2.25%. Using the principles of arbitrage, what is the lower bound for the price of a 3-month European put option for BA with a strike price $300? (pick the best answer) Group of answer choices -24.87≤ p -15≤ p 0≤ p 300≤ pFirm A is currently trading at $17.80 per share. Firm A announces that it will acquire Firm B at a ratio of 4:7 shares. Firm B shares rise from $8.45 to $9.73 immediately following the announcement while Firm A's stock price remains unchanged. What is the implied probability that the market thinks the deal will go through?Stout Inc.'s perpetual preferred stock sells for $65.00 per share, and it pays an $8.50 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by investors. What is the company's cost of preferred stock for use in calculating the WACC? a. 10.39% b. 13.62% c. 14.40% d. 14.28% e. 11.81%
- Perpetual preferred stock sells for $97.50 per share, and it pays an $6.85 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by investors. What is the company's cost of preferred stock for use in calculating the WACC? a. 7.32% b.6.25% c. 8.01% d.5.18% e. 4.11%its urgent An investor currently holds 1,000 shares of QQQ, the Power Shares NASDAQ 100 ETF, priced at $105.78/share. The investor would like to hedge the risk associated with the position in the short-term. QQQ puts with a strike price of 102.50 and expiring in two months currently have a premium of $1.18. Call options with the same expiration and a strike price of 107 currently have a premium of $1.03. Explain how the investor could hedge the downside risk of QQQ by either purchasing the 102.50 put, or by creating a range forward (purchasing the 102.50 put and selling the 107 call). Compare and contrast the two alternative hedges. Remember, each option contract covers 100 shares, the investor would need 10 contracts to cover their position in QQQ.Conglomerate Inc. is trading at $80/share, and is about to announce its intent to acquire Tiny Corp. who is an all-equity firm with 20 million shares trading at $5/share. The projected synergies from the acquisition are $15 million. What is the maximum exchange ratio Conglomerate Inc. could offer in a stock swap and still have the deal be positive NPV? 18.4 1.43 11.24 1.66
