Question
If you can. Answer the easiest questions, i need an answer before 2 hours. Thank you so much! 1. (5 points) You are planning your
If you can. Answer the easiest questions, i need an answer before 2 hours. Thank you so much!
1. (5 points) You are planning your retirement in 10 years. You currently have 150,000 in a bond account and 450,000 in a stock account. You plan to add 9,000 per year at the end of each of the next 10 years to your bond account only. The stock account will earn an 11.5% return and the bond account a 7.5% return. When you retire, you plan to withdraw an equal amount for each of the next 25 years at the end of each year and have nothing left. Additionally, when you retire you will transfer your money to an account that earns 6.75%. How much can you withdraw each year? 3. (5 points) Assume the following information for firm Omega: Bonds = 30 million with yield to maturity = 8%; Stocks = 100 million; covariance of the stock returns with the market = 0.048; standard deviation of the market = 0.20; market risk premium = 0.075; risk free return = 0.06; corporate tax rate = 0.28. Omega plans to buy a new machine that costs 40 million. The machine will lead to annual cash flows of 6 million per year for 20 years. The purchase of machine will not change the risk level of the firm. Should Omega buy the machine? Show your answer!
4. Company Delta has 250 shares outstanding. Its assets consists of cash = 500 and fixed assets of 2,000. Answer the following questions: (i) (2 points) Sigma has declared a dividend of 0.80 per share. The stock goes exdividend tomorrow. What is the price of stock today and tomorrow? (Assume no taxes) (ii) (2 points) Sigma has declared instead a 12% stock dividend. The stock goes exdividend tomorrow. What is the price of stock today and tomorrow? (Assume no taxes) (iii) (2 points) Instead of paying a cash dividend, Sigma has announced that it is going to repurchase 200 of stock. What is the effect of this repurchase? Ignoring taxes, show how this repurchase is effectively the same as a 0.80 dividend per share.
5. (5 points) An equity is currently priced at 75. The equity will either increase or decrease by 15% over the next year. Assume a risk-free interest rate of 12%, and an exercise price of 70. What is the put price with the same exercise price?
6. (5 points) You are given the following information: S0 = 2 SF/$, rUS = 10%, F1 = 1.9 SF/$, rSCH = 5%, Where: S0 = Spot rate between Swiss Franc and $, F1 = the one year forward rate, rUS the US annual interest rate, and rSCH the Swiss annual interest rate. There is an arbitrage free profit. Find it and explain all the necessary transactions you need to make in order to obtain that profit.
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