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Question
A small business is receiving a five-year $1,000,000 loan at a subsidized rate of 3% per year. The firm will pay 3% annual interest payment each year and the principal at the end of five years. If market interest rate on similar loans is 6% per year, what is the NPV of the loan? (Ignore taxes.)
A. +$127,371
B. +$348,369
C. -$501,595
D. None of the above
Answer
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Related questions
Q:
Suppose VS's stock price is currently $20. In the next six months it will either fall to $10 or rise to $30. What is the current value of a put option with an exercise price of $15? The six-month risk-free interest rate is 5% (periodic rate).
A. $5.00
B. $2.14
C. $0.86
D. $7.86
Q:
Suppose Ralph's stock price is currently $50. In the next six months it will either fall to $30 or rise to $80. What is the option delta of a call option with an exercise price of $50?
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B. 0.500
C. 0.600
D. 0.75
Q:
A call option has an exercise price of $100. At the final exercise date, the stock price could be either $50 or $150. Which investment would combine to give the same payoff as the stock?
A. Lend PV of $50 and buy two calls
B. Lend PV of $50 and sell two calls
C. Borrow $50 and buy two calls
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Briefly explain the term "option delta."
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The binomial model is a discrete time model.
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Using the binomial model, what is the value of a three month option given the following data and assuming there are no time periods other than three months? The exercise price is $40; stock price is $46; the upside price is $48; the downside price is $34; the 3 month interest rate is 2%. The upside and down side have equal probabilities.
A. $3.92
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Q:
The Black-Scholes OPM is dependent on which five parameters?
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D. Stock price, exercise price, risk free rate, variance and time to maturity
Q:
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A. Fall by more than the amount of the dividend
B. Fall exactly by the amount of the dividend
C. Fall by less than the amount of the dividend
D. Cannot be predicted
Q:
One key assumption of the Miller and Modigliani (MM) dividend irrelevance argument is that:
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B. There are no capital gains taxes
C. All investments are risk-free
D. New shares are sold at a fair price
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Generally, investors view the announcement of open-market repurchase of stocks as:
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B. good news and the stock price increases
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Generally, investors interpret the announcement of a decrease in dividends as:
A. bad news and the stock price drops
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Generally, investors interpret the announcement of an increase in dividends as:
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D. very bad news and the stock price plunges