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Could you answer the following finance question please? 5. a. (8 points) The current price of KD Industries stock is $20. In the next year

Could you answer the following finance question please?

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5. a. (8 points) The current price of KD Industries stock is $20. In the next year the stock price will either go up by 20% or go down by 20%. KD pays no dividends. The one-year risk-free rate is 5% and will remain constant i. Using the binomial pricing model, calculate price of a one-year put option on KD stock with a strike price of $20. Make sure to draw a binomial tree with payoffs. ii. Using risk neutral probabilities, calculate price of a one-year call option on KD stock with a strike price of $20. b. (8 points) In June 2016, the spot exchange rate for the British Pound was $1.4255/E. Suppose that at the same time Luther Industries entered into a contract to purchase goods with a price of $400,000 to be delivered in one year. There is a one-year call option contract available to Luther which will allow the company to purchase $10,000 for $1.50/E. If Luther purchases 40 option contracts, and the spot rate at the time the contract is due is $1.3465/E, how much will Luther pay for the goods? Explain C. (8 points) Assume a 20% corporate income tax. Does a project that returns 16% before tax have a negative NPV if it cost $100 today and if the appropriate after-tax cost of capital is 11%? d. (9 points) A gold-mining firm is concerned about short-term volatility in its revenues. Gold currently sells for $300 an ounce, but the price is extremely volatile and could fall as low as $280 or rise as high as $320 in the next month. The company will bring 1,000 ounces to the market next month. i. What will be total revenues if the firm remains unhedged for gold prices of $280, $300, and $320 an ounce? ii. The future price of gold for delivery one month ahead is $301. What will be the firm's total revenues at each gold price if the firm enters into a one-month futures contract to deliver 1,000 ounces of gold? Does the firm buy or sell futures contract? iii. What will total revenues be if the firm buys a one-month put option to sell gold for $300 an ounce? The put option costs $2 per ounce. iv. What are the advantages and disadvantages of using futures rather than options to reduce risk

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