FUNDAMENTALS OF CORPORATE FINANCE
10th Edition
ISBN: 9781260013962
Author: BREALEY
Publisher: RENT MCG
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Chapter 1, Problem 38QP
Summary Introduction
To discuss: The ethical issues involved in some of the practices represented in Finance in Practice box on ethic disputes in finance.
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Students have asked these similar questions
A Put option with a maturity of 5 months sells for $8.10. A call with the same expiration sells for $6.12. If the exercise price is $70 and the stock is currently priced at $66.81, what is the annual continuously compounded interest rate?
a.
4.18%
b.
4.81%
c.
1.48%
d.
8.14%
Hedging:
a.
means diversifying a portfolio to reduce risk
b.
is a source of agency problem
c.
is a growth of plants around the corporate office to ensure cleaner air.
d.
increases volatility
If a firm is selling futures contracts on silver, as a hedging strategy, what must be true about the firm’s exposure to silver prices?
a.
The firm is a silver supplier
b.
All options are correct
c.
The firm wants protection against a fall in silver price
d.
Loss in the spot market can be offset by gain in futures market
Chapter 1 Solutions
FUNDAMENTALS OF CORPORATE FINANCE
Ch. 1 - Prob. 1QPCh. 1 - Financial Decisions. Which of the following are...Ch. 1 -
Financial Decisions. What is the difference...Ch. 1 - Prob. 4QPCh. 1 -
Real and Financial Assets. Read the following...Ch. 1 - Prob. 6QPCh. 1 - Prob. 7QPCh. 1 - Prob. 8QPCh. 1 -
Corporations. What is limited liability, and who...Ch. 1 - Prob. 10QP
Ch. 1 - Prob. 11QPCh. 1 - Prob. 12QPCh. 1 - Prob. 13QPCh. 1 -
Goals of the Firm. Give an example of an action...Ch. 1 -
Cost of Capital. Why do financial managers refer...Ch. 1 -
Goals of the Firm. You may have heard big...Ch. 1 -
Goals of the Firm. Fritz is risk-averse and is...Ch. 1 - Prob. 18QPCh. 1 - Prob. 19QPCh. 1 - Prob. 20QPCh. 1 - Prob. 21QPCh. 1 -
Cost of Capital. British Quince comes across an...Ch. 1 - Cost of Capital. In a stroke of good luck, your...Ch. 1 - Prob. 24QPCh. 1 - Prob. 25QPCh. 1 - Prob. 26QPCh. 1 - Prob. 27QPCh. 1 - Prob. 28QPCh. 1 - Prob. 29QPCh. 1 - Prob. 30QPCh. 1 - Prob. 31QPCh. 1 - Prob. 32QPCh. 1 - Prob. 33QPCh. 1 - Prob. 34QPCh. 1 - Prob. 35QPCh. 1 - Prob. 36QPCh. 1 -
Ethics. Is there a conflict between “doing well”...Ch. 1 -
Ethics. Look at some of the practices described...
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- You expect to deliver 42,000 bushels of wheat to the market in July. Today, you hedge your position by selling futures contracts on half of your expected delivery at the final price of the day. Assume that the market price turns out to be 582.0 when you actually deliver the wheat. How much more or less would you have earned if you had not sold the futures contracts? Wheat - 5,000 bu.: U.S. cents per bu. Open High Low Settle Jul 559.0 562.4 559.0 561.5 You would earn the spot price b. No option is correct ○ c. $8,820 O d. $4,305arrow_forwardWhat does a protective put protect against? a.A rise in the price of the underlying asset b.Any change in the price of an underlying asset c.No change in the price of any underlying asset d.A fall in the price of the underlying assetarrow_forwardA true lease is also called: a. a special-purpose lease b. a synthetic lease c. a conditional sales agreement d. No option is correctarrow_forward
- Which one of the following statements related to dividend policy is correct? a. Dividend policy focuses on the timing of dividend payments. b. Homemade dividends increase the importance of a firm's dividend policy decisions. c. Both dividends and dividend policy are irrelevant. d. The primary question related to dividend policy is whether or not a firm should ever pay a dividend.arrow_forwardA Put option with a maturity of 5 months sells for $8.10. A call with the same expiration sells for $6.12. If the exercise price is $70 and the stock is currently priced at $66.81, what is the annual continuously compounded interest rate? a. 4.18% b. 4.81% c. 1.48% d. 8.14%arrow_forwardAssume the current spot rate is C$1.2103 / US$ and the one-year forward rate is C$1.1925 / US$. The nominal risk-free rate in Canada is 3 percent while it is 4 percent in the U.S. Using covered interest arbitrage you can earn an extra _____ profit over that which you would earn if you invested $1 in the U.S. a. $0.015 b. $0.018 c. $0.005 d. $0.009arrow_forward
- An indirect FOREX quote is also known as: a. An American quote b. Cross quote c. Home country quote d. A European quotearrow_forwardLet us say that a put and a call have the same maturity and strike price. If they have the same price, what will be the value of the stock? a. Stock price = Exercise price b. Stock price = 0 c. Stock price = call price = put price d. Stock Price = Present value of Exercise pricearrow_forwardZuzu Inc. plans to acquire a capital asset worth US$50,000. The asset is depreciable over 5 years on a straight-line basis, after which it will have no salvage value. Zuzu arranges for the asset to be leased for a lease rental of US$25,000 per year for two years after which it buys it for US$0.50. a. There will be increased tax benefit due to accelerated lease rentals b. No option is correct c. Tax authorities prefer such a system because it allows more benefit for the lessee. d. Zuzu Inc. will not be able to claim any tax benefit.arrow_forward
- The camera you want to buy costs $230 in the U.S. How much will the identical camera cost in Canada if the exchange rate is C$1 = $0.8262? Assume absolute purchasing power parity exists. a. $238.77 b. $278.38 c. $241.19 d. $248.60arrow_forwardThere are two firms, X and Y. Their values are VX and VY respectively. For synergy to take place, what should be the value of the combined firm, VXY Equal to VX + VY b.No option is correct c.Less than VX + VY d.VXY should be 0arrow_forwardThere are two methods for constructing the statement of cash flows: the direct method and the indirect method. What are the similarities and differences between the two methods? Which of the two is most preferred? Which is required by FASB?arrow_forward
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