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- . Wood, the receiver of Stanton Oil Company, suedStanton’s shareholders to recover dividends paid to themfor three years, claiming that at the time these dividendswere declared, Stanton was in fact insolvent. Wood didnot allege that the present creditors were also creditorswhen the dividends were paid. Were the dividendswrongfully paid? ExplainDeacon Corporation has just announced its intent to undertake a three-for-one stock split at the end of the next quarter. How will this announcement most likely affect trading activity for Deacon shares? O Investors will likely show increased interest in purchasing Deacon shares, thus leading to an increase in the current price per share. Investors will likely start dumping Deacon shares, thus leading to a decrease in the current price per share. Investors will likely be indifferent to the announcement, and Deacon's share price and trading volume will remain at their current levels. O Investors will likely begin to show a strong preference for purchasing odd lots of the firm's shares, thus leading to a decline in the price of round lots. eTextbook and Media1. When the price of the underlying financial instrument exceeds the exercise [strike] price of a call option, the option is said to be: *a. ripe for a put.b. out of the running.c. in the money.d. dead on the money. 2. An option that gives the holder the right to sell a stock at a specified price at some time in the future is called a (n) *a. Put optionb. Covered optionc. Out of the money optiond. Call option 3. When a company proposes to issue its shares to its existing shareholders, it is called a (n) *a. Rights issueb. Initial public offeringc. Private placementd. Secondary issuance
- A Company's stock currently pays a dividend of $5 dollars per year and you expect that dividend to grow by 3% every year, forever, such that next year you expect the dividend to be 5.15, to be 5.3045 the year after that, and so on. If your discount rate is 9%, a fair price for this stock today is_____.If your discount rate were to fall to 7%, holding all else the same, the fair price of the stock would increase to_________.AIR, an airline company, used to deal only in derivatives of futures and swaps to hedge its jet fuel market risk. However, in the mid2003, AIR started trading in speculative derivative options and took a bullish view of the jet fuel market.The company predicted correctly but by the end of 2003, AIR revised its strategy to a bearish stance.The CEO signed contracts with several banks, buying put options and selling call options, but the prices soared above the strike priceof the call, and AIR faced a large deficit.1. Explain how AIR could have floored the losses through an adequate risk management procedureDespite mark to market losses of $30 million by mid 2004, the CEO increased AIR exposure.In addition, the trading was not disclosed in the financial statements, and AIR accounted for the options at intrinsic value, ignoringthe time value component.From March 2003, AIR started trading options on its own account.AIR was unable to meet some of the margin calls, resulting in the company…- Could you give further explanation in the meaning of "Min(X-S,0)" in Profit from Call Option equation & "Max(X-S,0)" in Profit from Put Option equation above for who has little basic concept of option and stock? - What's make investor decide to short option because I see that short position has more chance to loss the money, what's occur before between open long status and short status in the same strike price? - What's called spot price? $42 or $43
- A buyer or seller must consider a number of risks when evaluating whether a long-term contract is necessary or even desirable. Three primary questions must be asked when developing a long-term contract and considering the risks: What is the potential for opportunism? In other words, how likely is the supplier to take advantage of the purchaser (or vice versa)? Is this the right supplier to engage in a long-term contract? C.Is there a fair distribution of risk and gains between the parties involved?Are derivatives similar to insurance in that both have an indefinite life spans, allow for the transfer of risk from one party to another or allow for the transformation of the underlying risk itself? First explain why one or more of the options above are correct. Secondly explain why, if any of the remaining options are incorrect. Your justification/s should be one sentence for each of the points above, in bullet point format.QUESTION 8 Consider the market for a bond which has a face value of $2,000, pays a coupon of $100, and matures in 1 year (that is, you will get the face value and one coupon payment next year). Suppose the orignal demand for such bonds is given by P=4,000-2Q, and that the supply of such bonds is given by P=1,000+Q. Keeping this supply curve fixed, suppose the demand curve next year will be given by P=3,400-2Q. What would be my rate of return if I bought the bond at the equilibrium price today and sold it at the equilibrium price tomorrow? 5% -.05% 10% -5%
- As and example of a possible investment restriction, an insurer mah only be allowed to invest up to 20 percent of its assets in common stock. What penalty is imposed upon the insurer that invests 30 percent of available assets in common stock?A. The additional 10 percent must be disposed of by year endB. The state regulators would impose a 10 percent fine on the insurer.C. The additional 10 percent would be a nonadmitted asset.D. The additional 10 percent would only be listed at cost.6. Risk-averse people will choose different asset portfolios than people who are not risk averse. Over a long period of time, we would expect thatA.every risk-averse person will earn a higher rate of return than every non-risk averse person.B.every risk-averse person will earn a lower rate of return than every non-risk averse person.C.the average risk-averse person will earn a higher rate of return than the average non-risk averse person.D.the average risk-averse person will earn a lower rate of return than the average non-risk averse person. 7.The real exchange rate equals the relative A.price of domestic and foreign currency.B.price of domestic and foreign goods.C.rate of domestic and foreign interest. D.None of the above is correct. 8.According to the theory of liquidity preference, an increase in the price level causes theA.interest rate and investment to rise.B.interest rate and investment to fall.C.interest rate to rise and investment to fall.D.interest rate to fall and…Suppose that instead Einar short sells 200 shares of German Power Weak Inc. at $40 each. NASDUCK now sets a margin requirement of 30%.(e) How much cash does Einar need to invest?(f) Calculate the margin call of NASDUCK if the price increases to $44.(g) Suppose the price falls to $25. How much cash can Einar take out from his margin account?(h) Suppose he takes out 50% of the amount in part (g). At what price threshold will Einar face a margin call by NASDUCK?