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Financial Management and Derivatives: A Problem-Solving Assignment

This assignment solution covers financial management principles and derivatives analysis.

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Financial Management and Derivatives: A Problem-Solving AssignmentA 6-month put option on Makler Corp.'s stock has a strike price of $47.50 and sells in themarket for $8.90. Makler's current stock price is $41.00. What is the exercise value ofthe option?Answer$6.10$7.30$6.50$6.05$6.45Lissa Co.'s stock price is currently $26.75. A 6-month call option on Lissa's stock has astrike price of $25 and has an expected volatility of 40% (i.e., expected standarddeviation = 40%). The risk-free rate is 6%. According to the Black-Scholes optionpricing model, what is the value of the option?Answer$5.05$4.45$5.27$4.28$3.25If one U.S. dollar buys 1.46 Canadian dollars, how many U.S. dollars can you purchasefor one Canadian dollar?Answer0.71230.55480.68490.56850.6781Warren Corporation's stock sells for $42 per share. The company wants to sell some 20-year, annual interest, $1,000 par value bonds. Each bond would have 75 warrantsattached to it, each exercisable into one share of stock at an exercise price of $47. Thefirm's straight bonds yield 10%. Each warrant is expected to have a market value of $4.00given that the stock sells for $42. What coupon interest rate must the company set on thebonds in order to sell the bonds-with-warrants at par?Answer5.89%6.74%6.48%5.63%8.03%Operating leases often have terms that include:maintenance of the equipment by the lessor.full amortization over the life of the lease.very high penalties if the lease is cancelled.

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