a.
To calculate: The value offered per share of Chicago Savings Corp.
Introduction:
Share Price:
The highest price of one share of a company that an investor is willing to pay is termed as the share price. It is current price used for the trading of such a share.
b.
To calculate: The percentage gain at the computed price in part (a) for Chicago Savings Corp.
Introduction:
A rate that shows the net profit or loss, an investor earns or loses on the investment over a particular time period is termed as the rate of return.
Percentage Gain:
It is the percentage that shows the net gain, an individual gain at the time of selling a product and it can be calculated by dividing the difference of the cost price and selling price from the original price (cost price). It is incurred when a product is sold at more than its cost price.
c.
To calculate: The percentage loss value after the cancellation of merger for Chicago Savings Corp.
Introduction:
Rate of return:
A rate that shows the net profit or loss that an investor earns or loses on the investment over a particular time period is termed as the rate of return.
Percentage Loss:
It is the percentage that shows the net loss that an individual loses at the time of selling a product and it can be calculated by dividing the difference of the cost price and selling price from the original price (cost price). It is incurred when a product is sold at less than its cost price.
d.
To calculate: The expected value of the return on Chicago Savings Corp.’s investment.
Introduction:
Expected value:
Also known as the mean, it is the value that is estimated or anticipated to be earned in the future from an investment. It is computed by adding up the values that are the result of multiplying each outcome from the probability.
Want to see the full answer?
Check out a sample textbook solution- Suppose you are thinking of purchasing the SunStar’s common stock today. If you expect SunStar to pay $0.80 dividend at the end of year one and $1.6 dividend at the end of year two and you believe that you can sell the stock for $15 at that time. If you required return on this investment is 10%, how much will you be willing to pay for the stock? a. $13.95 b. $14.44 c. 14.19 d. $15.51arrow_forwardRefer to the stock options on Microsoft in the Figure 2.10. Suppose you buy a November expiration call option on 100 shares with the excise price of $140. Required: a-1. If the stock price at option expiration is $144, will you exercise your call?a-2. What is the net profit/loss on your position? (Input the amount as a positive value.)a-3. What is the rate of return on your position? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) b-1. Would you exercise the call if you had bought the November call with the exercise price $135?b-2. What is the net profit/loss on your position? (Input the amount as a positive value.)b-3. What is the rate of return on your position? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)c-1. What if you had bought the November put with exercise price $140 instead? Would you exercise the put at a stock price of $140?c-2. What is the rate of return on your position? (Negative…arrow_forwardTwo investors are evaluating General Electric’s stock for possible purchase. They agree on the expected value of D1, and also on the expected future dividend growth rate. Further, they agree on the risk of the stock. However, one investor normally holds stocks for 2 years and the other normally holds stocks for 10 years. On the basis of the type of analysis done in this chapter, they should both be willing to pay the same price for General Electric’s stock. True or false? Explain.arrow_forward
- Explain well all point of question with proper answer.arrow_forwardYou took a long position in a call option on DBS’s share. The option premium is $7 per contract and the option has an exercise price of $25. DBS’s share is currently trading at $30. (d) Construct a payoff function to graphically illustrate your profit level when DBS’s share is $20, $30 and $40, and indicating the share price for you to breakeven for this long position. (e) What must the share price be for the option to be at the money?arrow_forwardSuppose XYZ stock pays no dividends and has a current price of $50. The forward price for delivery in 1 year is $55. Suppose the 1-year eective annual interest rate is 10%. (a) Graph the payo and prot diagrams for a forward contract on XYZ stock with a forward price of $55. (b) Is there any advantage to investing in the stock or the forward contract? Why? (c) Suppose XYZ paid a dividend of $2 per year and everything else stayed the same. Now is there any advantage to investing in the stock or the forward contract? Why?arrow_forward
- Suppose that the last sale of Company X stock was at a price of $50. Further suppose that an investor wishes to place a market order to purchase 25,000 shares of Company X stock. What is the volume weighted average price that the investor will trade at in each of the market? What if the investor purchase 120,000 shares instead 25,000? Market Depth - Market A vs B Market AMarket B#SharesOffer ($)#SharesOffer ($)30,00050.0010,00050.0040,00050.0210,00050.0110,00050.0570,00050.0320,00050.0680,00050.0430,00050.0760,00050.0510,00050.0940,00050.05arrow_forwardYou happen to be checking the newspaper and notice an arbitrage opportunity. The current stock price of Intrawest is $25 per share and the one-year risk-free interest rate is 3%. A one-year put on Intrawest with a strike price of $23 sells for $3.15, while the identical call sells for $6.13. Explain what you must do to exploit this arbitrage opportunity. (Select the best choice below.) OA. The strategy would be to sell the call option, buy the put and the stock, and borrow $22.33. The net benefit is $0.31. OB. The strategy would be to sell the call option, buy the put and the stock, and borrow $23. The net benefit is $0.31. OC. The strategy would be to sell the call option, buy the put and the stock, and borrow $22.33. The net benefit is $0.98. OD. The strategy would be to buy the call option, sell the put and the stock, and borrow $22.33. The net benefit is $0.31.arrow_forwardYou are considering buying some share in The Wayne Coporation as part of your retirement account. First, you want to calculate the expected return for Wayne Corp's stock to see if it meets your very high standards. You have estimateed the 3 for Wayne Corp to be 2.38, the risk free rate in the market to be 2%, and the expected return on the market to be 20. What is the expected return for Wayne Corp? (Answer in Percentage terms and Round to 2 decimals)arrow_forward
- Your broker has recommended that you purchase stock in ZZZ-Best, Inc. She estimates that the 1-year target price is $70, and ZZZ-Best consistently pays an annual dividend of $8. Based on your analysis, you estimate that the stock has a required rate of 18%. What is the intrinsic value of this stock? O $64.43 O $68.73 O $67.35 O $61.86 O $66.10arrow_forwardLet there exist a non-dividend-paying stock, A, which has a current price of $80. Let there exist another stock, B, which has a current price of $100. Stock B will continuously pay dividends at a dividend yield of x. A one-year European exchange call option with underlying asset A and strike asset B is sold for $5, while a one-year European exchange put option with underlying asset A and strike asset B is sold for $15. 12% is the continuously compounded, risk-free interest rate. Calculate the value of stock B's dividend yield, x.arrow_forwardYou would like to be holding a protective put position on the stock of XYZ Company to lock in a guaranteed minimum value of $108 at year-end. XYZ currently sells for $108. Over the next year, the stock price will increase by 12% or decrease by 12%. The T-bill rate is 4%. Unfortunately, no put options are traded on XYZ Company. Required: a. Suppose the desired put option were traded. How much would it cost to purchase? b. What would have been the cost of the protective put portfolio? c. What portfolio position in stock and T-bills will ensure you a payoff equal to the payoff that would be provided by a protective put with X=108? Show that the payoff to this portfolio and the cost of establishing the portfolio match those of the desired protective put. Complete this question by entering your answers in the tabs below. Required A Required B Required C Suppose the desired put option were traded. How much would it cost to purchase? Note: Do not round intermediate calculations. Round your…arrow_forward
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning