Answer:
According to put-call parity, the anticipated share price is $31.95.
Explanation:
Given values:
share price = $31.63
yearly dividend = $1.50 per year
strike price = $27
call price = $6.10
put price = $2.65
expiry duration = 1 year
Solution:
Put-Call Parity expresses the price relationship between a put option, a call option, and the underlying stock.
We will apply the fundamental put-call parity formula, which states:
Po + So = Co + (D + X × 
...................1
In this equation, Po is the put option, Co is the call option, X is the strike price, So is the stock price, and D represents dividend, which is 0 in this case.
This means the stock price can be calculated as:
So + Po = Co + D + X
So + $2.65 = $6.10 + $1.5 + $27
So = $31.95
Thus, the predicted share price in accordance with the put-call parity is $31.95.
Answer:
The Internal Rate of Return (IRR) assesses how profitable the capital that remains invested across the duration of a project is. It is also recognized as the discount rate that brings the Net Present Value (NPV) to zero. Therefore, if employing the IRR leads us to zero for the NPV, it implies the project neither creates nor destroys value.
The required rate of return signifies the minimum expected return an investor anticipates when committing to a project.
If investment in both projects remains throughout their lifespan, both could work well for the investor. However, as they are mutually exclusive, a choice must be made. If project B’s investment is held throughout its duration, it will possess a greater internal rate of return, thus suggesting its selection. Nevertheless, it is wise to evaluate additional financial indicators, as the IRR assumes reinvestment of all earnings into the same project, which may not reflect reality where returns might not be reinvested at the same rate.
The attached figure illustrates the IRR formula. However, I computed it through Excel: initially, I documented the cash flows for each year (the first being negative due to initial investment). I then applied the formula: "=IRR(D5:C8)" for project A and "=IRR(E5:E8)" for project B.
Complete Question:
James Stilton serves as the CEO of RightLiving, Inc., a corporation that purchases life insurance policies at a reduced price from terminally ill individuals and sells them to investors. RightLiving compensates terminally ill patients with a percentage of the future death benefits (typically 65%) and subsequently sells the policies to investors for 85% of the future benefit amount. The patients receive funds to assist with their medical and other expenses, while the investors are assured a positive return on their investments. The difference between the purchase and retail prices represents RightLiving's profit.
Stilton is aware that some sick patients might acquire insurance policies through deceit (by concealing their illness on the application). If an insurance company uncovers such fraud, it will annul the policy and withhold payment. While Stilton is confident that most of the policies he has acquired are legitimate, he recognizes that a few may not be.
Requirement:
What additional ethical dilemmas might Stilton encounter?
Answer with Explanation:
Stilton's ethical challenges include:
- Should he disclose potential fraud to investors prior to executing sales?
- What policies should be established to ensure that legitimate individuals can easily sell their policies, and how would lack of such policies be unfair for RightLiving, Inc.?
- Stilton also faces ethical issues because the business model benefits from the early deaths of clients, which raises moral questions.
Answer:
15.18%
Explanation:
To calculate the nominal annual rate
The first step is to determine EFF% with this formula
EFF% = [1 + (Nominal rate percentage/Number of months in a year)]^Number of months in a year
Let's substitute into the formula
EFF% = [1 + (15%/12)]^12
EFF% = (1 + 0.0125)^12
EFF% = (1.0125)^12
EFF% = 1.1608 × 100%
EFF% = 116.08%
The second step is to find Rnom for quarterly compounding at 116.08% using this formula
Rnom compounding quarterly = (1 + (R/4))^4
Let's plug into the formula
Rnom compounding quarterly = (116.08%)^(1/4) Rnom compounding quarterly = 1 + R/4
Thus,
Rnom compounding quarterly = 15.18%
Therefore, Anne Lockwood should offer her customers a nominal rate of 15.18% compounded quarterly
