a) Describe the potential returns of the portfolio that is combined with changes in S&P 500 index after 30days.
To Determine:
To determine the potential returns of the portfolio that is combined with changes in S&P 500 index after 30days
Introduction:
S&P index gives the index stock market of 500 large public trade stocks of US. This includes the index stock of economy part that are selected by the S&P committee members. To get selected by the committee it should have a market cap of $5.3 billion with the 50% public float. For four quarter years they should have positive earnings along with the liquidity given by the volume and price
b) Discuss the effect on the delta with the hedge ratio of each option as the S&P500 approacheseach level of the potential outcome given in part a.
To Determine:
To discuss the effect on the delta with the hedge ratio of each option as the S&P500 approaches each level of the potential outcome given in part a.
Introduction:
S&P index gives the index stock market of 500 large public trade stocks of US. This includes the index stock of economy part that are selected by the S&P committee members. To get selected by the committee it should have a market cap of $5.3 billion with the 50% public float. For four quarter years they should have positive earnings along with the liquidity given by the volume and price
c) Evaluate the each pricing of the following in relation to the data volatility.
To Determine:
To evaluate the each pricing of the following in relation to the data volatility
Introduction:
S&P index gives the index stock market of 500 large public trade stocks of US. This includes the index stock of economy part that are selected by the S&P committee members. To get selected by the committee it should have a market cap of $5.3 billion with the 50% public float. For four quarter years they should have positive earnings along with the liquidity given by the volume and price.
Want to see the full answer?
Check out a sample textbook solution
Chapter 16 Solutions
ESSENTIALS OF INVESTMENTS SELECT CHAPT
- created or destroyed. uses the weighted average cost of capital to determine if value is beingarrow_forwardUnder the subjective approach for project evaluation, all proposed projects are placed into several Blank______ categories. Multiple choice question. risk cost revenue returnarrow_forwardUsing the WACC as the discount rate for future cash flows is appropriate only when the proposed investment is Blank______ the firm's existing activities. Multiple choice question. riskier than different from less risky than similar toarrow_forward
- Suppose a project has a cost of $20 million and expected cash flows of 10 million per year for two years. If the WACC is 10%, what is the NPV of this project? Multiple choice question. $17.4 million –$2.6 million $2.6 million 0 millionarrow_forwardAlpha Corporation consists of two divisions, X and Y. Division X is riskier than Division Y. If Alpha Corporation uses the firm's overall weighted average cost of capital to evaluate both divisions' projects, which division(s) will tend to be awarded greater funds for investment? Multiple choice question. Only division X Neither division Both divisions Only division Yarrow_forwardAlpha Corporation consists of two divisions, X and Y. Division X is riskier than Division Y. If Alpha Corporation uses the firm's overall weighted average cost of capital to evaluate both divisions' projects, which division(s) will tend to be awarded greater funds for investment? Multiple choice question. Only division X Neither division Both divisions Only division Yarrow_forward
- Which of the following is true of the dividends paid to common stockholders? Multiple choice question. All companies are legally required to pay dividends when they earn a net income. All companies are legally required to pay fixed dividends regardless of their financial performance. Dividends paid are not tax deductible. Unlike interest payments, dividends paid are tax-deductible at the corporate level and are tax-free at the personal level.arrow_forwardIf a firm issues no debt, its weighted average cost of capital will equal Blank______. Multiple choice question. its cost of debt half the sum of the cost of debt and equity its dividend yield its cost of equityarrow_forwardIf a firm issues no debt, its weighted average cost of capital will equal Blank______. Multiple choice question. its cost of debt half the sum of the cost of debt and equity its dividend yield its cost of equityarrow_forward
- While computing the weighted average cost of capital, the is the better alternative when the market value is not readily available.arrow_forwardThe discount rate for firm's projects equals the cost of capital for the firm as a whole when Blank______. Multiple choice question. all projects have the same risk as the firm the average risk of the firm's projects is constant all projects have normally distributed returnsarrow_forwardTrue or false: The basic assumption of using weighted average cost of capital (WACC) to discount a project is that the capital has been raised in optimal proportions. True false question. True Falsearrow_forward
Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education