Cheryl Levin is the chief executive officer of Mountainbrook Trading Company. The board of directors has just granted Cheryl 10,000 at-the-money European call options on the company's stock, which is currently trading at $125 per share. The stock pays no dividends. The options will expire in five years and the standard deviation of the returns on the stock is 56 percent. Treasury bills that mature in five years currently yield a continuously compounded interest rate of 5 percent. Use the Black-Scholes model to calculate the value of the stock options. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Value of option grant
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- Mark Motel's debt has a face value of $40 million, a coupon rate of 14% (paid semiannually), and expires in 12 years (at t = 12 . The current annual yield-to-maturity (stated) for all bonds of the company is 15%. Mark wishes to conserve cash for the next few years. To do this, Mark decides to issue new equity and use the proceeds to purchase the existing debt at the market price. The current stock price of Mark is $60 and there are 2 million shares outstanding. 1. How many shares should Mark issue to purchase the existing debt? Assume the decision to purchase the bond does not change the stock price. Instead, the company decides to issue a zero-coupon bond that matures at year 5, and use the proceeds to purchase the existing debt at the market price. 2. What is the face value of the zero-coupon bond that Mark needs to issue?cullumber, inc has a bond issue maturing in seven years that is paying a coupon rate of 7.5 percent (semiannual payments). Management wants to retire a portion of the issue by buying the securities in the open market. if it can refinance at 6 percent, how much will cullumber pay to buy back its current outstanding bonds? Assume face value is $1000.cullumber, inc has a bond issue maturing in seven years that is paying a coupon rate of 9.0 percent (semiannual payments). Management wants to retire a portion of the issue by buying the securities in the open market. if it can refinance at 7.5 percent, how much will cullumber pay to buy back its current outstanding bonds?
- The stock of the Health Corporation is currently selling for Rs.20 a share and is expected to pay a Rs.1 dividend at the end of the year. If you bought the stock now and sold it for Rs.23 after receiving the dividend, what rate of return would you earn? Q 2 Gonzalez Electric Company has outstanding a 10 percent bond issue with a face value of Rs.1,000 per bond and three years to maturity. Interest is payable annually. The bonds are privately held by Suresafe Fire Insurance Company. Suresafe wishes to sell the bonds and is negotiating with another party. It estimates that, in current market conditions, the bonds should provide a (nominal annual) return of 14 percent. What price per bond should Suresafe be able to realize on the sale?A financial institution invests £74857 into a scheme of company shares. It is expected that the scheme will return a net dividend payable continuously in exactly 19 months from the time of the investment. After this initial delay, the dividends will amount to £15179 per year for the first 6 years and of £1352 per month for the remaining 6 years until the shares will be sold on for £6886. Assuming a nominal rate of interest of 5.4% pa convertible monthly is applicable for the entire period, calculate the net present value of this investment in £s to 2 decimal places.KroBank issues a zero coupon bond and it has to pay the face value of the bond of $100 M due in exactly five years. Assuming interest rates are currently at 8% p.a., which of the following is the best investment option for the bank to ensure it has enough funds to meet the liability in five years: Invest $100M today in coupon-paying bonds paying 8% p.a. annual coupons with maturity of 7 years (duration is 5.62 years), sell the bonds in year 5. Invest $100M today in coupon-paying bonds paying 8% p.a. annual coupons with maturity of 6 years (duration is 4.99 years), sell the bonds in year 5. Invest $100 M today in coupon-paying bonds paying 8% p.a. annual coupons with maturity of 5 years (duration is 4.31 years). Invest $100 M today in coupon-paying bonds paying 8% p.a. annual coupons with maturity of 8 years (duration is 6.21 years), sell the bonds in year 5.
- Square File’s assets are worth $220. It has $140 of zero-coupon debt outstanding that is due to be repaid at the end of two years. The risk-free interest rate is 5%, and the standard deviation of the returns on Square File’s assets is 40% per year. Calculate the present value of the company’s debt and equity. (Do not round intermediate calculations. Round your answers to 2 decimal places.)Corral Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of 8.5 percent, payable annually. The one-year interest rate is 8.5 percent. Next year, there is a 40 percent probability that interest rates will increase to 10 percent, and there is a 60 percent probability that they will fall to 6 percent. If the company decides instead to make the bonds callable in one year, what coupon will be demanded by the bondholders for the bonds to sell at par? Assume that the bonds will be called if interest rates fall and that the call premium is equal to the annual coupon. a) 8.12% b) 8.77% c) 8.59% d) 8.35%An investor pays $30,000 for a convertible bond (one that can be converted into shares of corporate common stock). The bond conversion rate is 100 shares of stock anytime within the next five years. What will the stock price have to be in year 3 in order for the investor to make 10% per year on the investment? Assume the bond interest rate is 4% per year payable annually.
- NU YU announced today that it will begin paying annual dividends. The first dividend will be paid next year in the amount of $0.61 a share. The following dividends will be $0.66, $0.81, and St a share annually for the following three years, respectively. After that, dividends are projected to increase by 40 percent per year How much are you willing to pay today to buy one share of this stock if your desired rate of retum is s percent? O $12.01 O $2.27 $11.54 O $9.08 O $12.15Poulter Corporation will pay a dividend of $4.40 per share next year. The company pledges to increase its dividend by 5.75 percent per year, indefinitely. If you require a return of 10 percent on your investment, how much will you pay for the company's stock today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current stock priceYou are the junior financial manager at Caribbean Capital Market Limited and you have beenasked to provide the calculations for the following scenarios to assist a client: Fourth Generation Corporation issued a bond 2 years ago which had a maturity at thattime of 15 years. Coupon payments are made semi-annually with an annual interest rateof 6%. If the face value of the bond is $1,000 calculate the value of the bond today whichhas a required rate of return of 7.5%.