Page 1 3) Consider an American call option on New Zealand dollars (NZ$) with a strike price of $0.8100/NZ$ traded at a premium of $0.0192 per NZ$ and with an expiration date three months from now. The option is for NZ$100,000. a. Suppose that you have bought such a call option. Plot your profit or loss on a graph should you exercise before maturity at a time when the NZ$ is traded spot at between $0.7000/NZ$ and $0.9200/ NZ$. Find the break-even exchange rate. b. Repeat (a) if you have sold such a call option. of 2

Page 1 3) Consider an American call option on New Zealand dollars (NZ$) with a strike price of $0.8100/NZ$ traded at a premium of $0.0192 per NZ$ and with an expiration date three months from now. The option is for NZ$100,000. a. Suppose that you have bought such a call option. Plot your profit or loss on a graph should you exercise before maturity at a time when the NZ$ is traded spot at between $0.7000/NZ$ and $0.9200/ NZ$. Find the break-even exchange rate. b. Repeat (a) if you have sold such a call option. of 2

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Space 1 options: less than or equal to, equal to, greater than or equal to Space 2 options: 0 0.5 1 8 16
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Super Tennis Co is in the business of designing and manufacturing running shoes for long distance runners. They are considering a $500 million upgrade to their production line for the iPhone/iPad/ iWatch connected shoe that has Bluetooth connectivity. The potential cash flow is estimated at net revenues of $460 million per year for four years. Recently, they were advised of potential patent infringement and to eliminate this problem they are considering buying a license. YezzCo will sell a license that is good for four years of exclusive use of the patent and associated intellectual property. Super Tennis Co uses a corporate MARR of 14% and their risk-free alternatives are 6%. The VP of Engineering at Super Tennis Co estimates market volatility in demand is 40%. The VP of Marketing estimates market volatility in demand at 35%. 1.Since the VPAc€?cs trust you, they asked you to figure out the most they should pay for a license from YezzCo. 2. Super Tennis Co is known to be liberal in…
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The US company needs funding in the amount of 5 million USD. Funding may be in the form of a debt: 4-year bonds issued in USD, interest rate: 10 percent per year. The company, however, considers the possibility of raising the debt in EUR at 8 percent annually. The current exchange rate is USD 1 = 0.8 EUR. The future scenarios of FX rates are presented below. Decide which option is better for the company. a) stable: 0.8; 0.7; 0.85; 0.9; 0.8 b) weakening: 0.8; 0.75; 0.7; 0.65; 0.6 c) strengthening: 0.8; 0.85; 0.9; 0.95; 0.98
Describe the net future worth of the project?
"All growth models. You are evaluating the potential purchase of a small company that currently generates $42,500 in cash flow after taxes (D0 = $42,500). Based on a review of similar risk investment opportunities, you should earn a return rate of 18% from the proposed purchase. Since you're not very sure about future cash flows, you decide to calculate the value of the company assuming some possibilities for the cash flow growth rate. a) What is the value of the company if cash flows are expected to grow at an annual rate of 0% from now on? b) What is the value of the company if cash flows are expected to grow at a constant annual rate of 7% from now on? c) What is the value of the company if cash flows are expected to grow at an annual rate of 12% for the first 2 years and then, starting from year 3, the growth rate decreases to a constant annual rate of 7%?"