Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 11, Problem 4PS
a)
Summary Introduction
To compute: The
b)
Summary Introduction
To compute: The expected price and certainty equivalent at the last part of the year.
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Students have asked these similar questions
On the London Metals Exchange, the price for copper to be delivered in one year is $5,500 a ton. (Note: Payment is made when the
copper is delivered.) The risk-free interest rate is 2% and the expected market return is 8%.
a. Suppose that you expect to produce and sell 10,000 tons of copper next year. What is the PV of this output? Assume that the sale
occurs at the end of the year.
Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.
b-1. If copper has a beta of 1.2, what is the expected price of copper at the end of the year?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
b-2. Assume copper has a beta of 1.2. What is the certainty-equivalent end-of-year price?
X Answer is complete but not entirely correct.
53.92 million
per
ton
a. Present value
b-1. Expected price
b-2. Certainty-equivalent price
$
$
IS
6,383.38
5,937
per
ton
consider a one-year forward contract on gold. Suppose that it costs $2 per ounce per year to store gold with payment being made at the end of the year. Assume that the spot price is $450 per ounce and the risk-free rate is 7% per annum for all
maturities. Assume continuous compounding. (a) What is the forward price F (0, 1) that does not result in arbitrage profit? (b) If the forward price is $460, do you get any arbitrage profit opportunity? If so, what is your strategy? (You need to provide
more than "buy low, sell high".)
Work out the value of European Call on a risky asset A, currently selling at $600. The European Call has a term to maturity of 1.5 years and a strike price of $675. SD(dA/A), the volatility of returns on the risky asset is 18% per year, and the discrete risk-free rate is 0.9% per year
Chapter 11 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 11 - Economic rents True or false? a. A firm that earns...Ch. 11 - Prob. 2PSCh. 11 - Prob. 3PSCh. 11 - Prob. 4PSCh. 11 - Prob. 5PSCh. 11 - Prob. 6PSCh. 11 - Prob. 7PSCh. 11 - Market prices Suppose the current price of gold is...Ch. 11 - Prob. 9PSCh. 11 - Economic rents Thanks to acquisition of a key...
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