Question: You are in the process of interviewing for a promotion
You are in the process of interviewing for a promotion at FinCorp Inc. and have to identify the type of security based on the payoff diagrams below. All options expire on January 15, 201x, and the underlying asset is the index. Match the series from the diagrams to the appropriate security andposition.
Answer to relevant QuestionsRichards & Co. Analysts has provided FinCorp Inc. with incomplete information, and it is your job to fill in the missing information in the tablebelow.Complete the followingtable.Determine the call price (C), given the following information: stock price (S) = $36, strike price (X) = $32, risk-free rate (r) = 5%, t = 2 years, σ = 20%.In most markets, you are not permitted to short sell if the stock price has fallen. That is, you can only short sell on an “uptick.” Using put-call parity, show that you can replicate the cash flows of a short sale.1. What will probably happen if a firm does not invest effectively?a. The firm could still maintain its competitive advantage.b. The cost of capital of the firm will be unchanged.c. The long-term survival of the firm will be ...
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