Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 21, Problem 26P

Consider the March 2010 $5 put option on JetBlue listed in Table 21 .1. Assume that the volatility of JetBlue is 65% per year and its beta is 0.85. The short-term risk-free rate of interest is 1% per year.

  1. a. What is the put option’s leverage ratio?
  2. b. What is the beta of the put option?
  3. c. If the expected risk premium of the market is 6%, what is the expected return of the put option based on the CAPM?
  4. d. Given its expected return, why would an investor buy a put option?
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The maturity value of an $35,000 non-interest-bearing, simple discount 4%, 120-day note is:
Carl Sonntag wanted to compare what proceeds he would receive with a simple interest note versus a simple discount note. Both had the same terms: $18,905 at 10% for 4 years. Use ordinary interest as needed. Calculate the simple interest note proceeds.   Calculate the simple discount note proceeds.
What you're solving for    Solving for maturity value, discount period, bank discount, and proceeds of a note.        What's given in the problem    Face value: $55300 Rate of interest: 10% Length of note:   95 days Date of note: August 23rd Date note discounted: September 18th   Bank discount rate:9 percent

Chapter 21 Solutions

Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book

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