Cheryl Levin is the chief executive officer of Mountainbrook Trading Company. Theboard of directors has just granted Cheryl 10,000 at-the-money European call options onthe company's stock, which is currently trading at $125 per share. The stock pays nodividends. The options will expire in five years and the standard deviation of the returnson the stock is 56 percent. Treasury bills that mature in five years currently yield acontinuously compounded interest rate of 5 percent. Use the Black-Scholes model tocalculate the value of the stock options. (Do not round intermediate calculations andround your answer to 2 decimal places, e.g., 32.16.)Value of option grant

Step 1:Formula to calculate Value of options using black-scholes is as follows: Value of call…

Answered: Cheryl Levin is the chief executive…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 15P

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Mark Motel's debt has a face value of $40 million, a coupon rate of 14% (paid semiannually), and expires in 12 years (at t = 12 . The current annual yield-to-maturity (stated) for all bonds of the company is 15%. Mark wishes to conserve cash for the next few years. To do this, Mark decides to issue new equity and use the proceeds to purchase the existing debt at the market price. The current stock price of Mark is $60 and there are 2 million shares outstanding. 1. How many shares should Mark issue to purchase the existing debt? Assume the decision to purchase the bond does not change the stock price. Instead, the company decides to issue a zero-coupon bond that matures at year 5, and use the proceeds to purchase the existing debt at the market price. 2. What is the face value of the zero-coupon bond that Mark needs to issue?
cullumber, inc has a bond issue maturing in seven years that is paying a coupon rate of 7.5 percent (semiannual payments). Management wants to retire a portion of the issue by buying the securities in the open market. if it can refinance at 6 percent, how much will cullumber pay to buy back its current outstanding bonds? Assume face value is $1000.
The stock of the Health Corporation is currently selling for Rs.20 a share and is expected to pay a Rs.1 dividend at the end of the year. If you bought the stock now and sold it for Rs.23 after receiving the dividend, what rate of return would you earn? Q 2 Gonzalez Electric Company has outstanding a 10 percent bond issue with a face value of Rs.1,000 per bond and three years to maturity. Interest is payable annually. The bonds are privately held by Suresafe Fire Insurance Company. Suresafe wishes to sell the bonds and is negotiating with another party. It estimates that, in current market conditions, the bonds should provide a (nominal annual) return of 14 percent. What price per bond should Suresafe be able to realize on the sale?
cullumber, inc has a bond issue maturing in seven years that is paying a coupon rate of 9.0 percent (semiannual payments). Management wants to retire a portion of the issue by buying the securities in the open market. if it can refinance at 7.5 percent, how much will cullumber pay to buy back its current outstanding bonds?
A financial institution invests £74857 into a scheme of company shares. It is expected that the scheme will return a net dividend payable continuously in exactly 19 months from the time of the investment. After this initial delay, the dividends will amount to £15179 per year for the first 6 years and of £1352 per month for the remaining 6 years until the shares will be sold on for £6886. Assuming a nominal rate of interest of 5.4% pa convertible monthly is applicable for the entire period, calculate the net present value of this investment in £s to 2 decimal places.
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An investor pays $30,000 for a convertible bond (one that can be converted into shares of corporate common stock). The bond conversion rate is 100 shares of stock anytime within the next five years. What will the stock price have to be in year 3 in order for the investor to make 10% per year on the investment? Assume the bond interest rate is 4% per year payable annually.
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NU YU announced today that it will begin paying annual dividends. The first dividend will be paid next year in the amount of $0.61 a share. The following dividends will be $0.66, $0.81, and St a share annually for the following three years, respectively. After that, dividends are projected to increase by 40 percent per year How much are you willing to pay today to buy one share of this stock if your desired rate of retum is s percent? O $12.01 O $2.27 $11.54 O $9.08 O $12.15

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