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Explain why the arguments leading to put-call parity for European options cannot be used to give a similar result for American options.
Compute the net income and earnings per share for each company for 2012. Comment on the relative liquidity of the companies by computing working capital and the current ratio for each company for 20
Explain how the options can be used to create a butterfly spread. Construct a table showing how profit varies with stock price for the butterfly spread.
Describe the terminal value of the following portfolio: a newly entered into long forward contract on an asset and a long position in a European put option on the asset with the same maturity as t
Based on the ratios calculated, discuss briefly the improvement or lack thereof in the financial position and operating results of Fellenz from 2011 to 2012.
Explain why an American option is always worth at least as much as a European option on the same asset with the same strike price and exercise date.
Define margin of safety as it applies to debt contracts and describe how the margin of safety can impact assessment of the relative level of company risk.
Determining core income is an important first step to estimating permanent income. Explain. What adjustments to net income should be made for estimating core income?
The bonds make semiannual coupon payments at a rate of 8.4 percent. If the current price of the bonds is $1,072.73, what is the yield that Trevor would earn by selling the bonds today?
What adjustments would you make to net income to determine economic income?
Explain how accounting principles can, in certain cases, create differences between financial statement information and economic reality.
Calculate the levered internal rate of return of this investment (assuming no debt and no taxes). Should you purchase? Why?
Explain how accounting concepts and standards, and the financial statements based on them, are subject to the pervasive influence of individual judgments and incentives.
What does the auditor"s reference to generally accepted accounting principles imply for our analysis of financial statements?
An auditor does not prepare financial statements but instead samples and investigates data to render a professional opinion on whether the statements are "fairly presented." List the potential impl
Calculate the before-tax cash flow (BTCF) for each of the four years. Calculate the before-tax equity reversion (BTER) from the sale of the property. Calculate the levered net present value of this in
Describe the "corridor method" for deferring and amortizing actuarial gains and losses and return on plan assets. What is the rationale for using this method?
Define off-balance-sheet financing and provide three examples.
Define the term big bath. Explain when a manager would consider "taking a big bath" and how analysis of current financial position and future profitability might be adjusted if one suspects that a c
Economic income measures change in value while permanent income is proportional to value itself. Explain this statement.
Both convertibility and warrants attached to debt aim at increasing the attractiveness of debt securities and lowering their interest cost. Describe how the costs of these two features affect incom
Calculate the loan balance at the end of years 1, 2, 3, and 4. (Note: the unpaid mortgage balance at any time is equal to the present value of the remaining payments, discounted at the contract
Critique the analogy of accrual accounting to "nail soup."
Do you agree or disagree with this statement? Explain. How does accrual accounting provide superior information to cash flows? What are the imperfections of accrual accounting? Is it possible for accr
Calculate the net present value of this investment, assuming no mortgage debt. Should you purchase? Why? Calculate the internal rate of return of this investment, assuming no debt. Should you purchase