## Introduction

The formula is structured this way in order to make its analysis easier and more standardized. c. The investor in this case, by applying the model, understands the non feasibility of exercising the call option, since the price of the asset is lower than the strike price of 110. Question 2 a. Re = Ra + D/E(Ra-Rd) Firm A: 14% + 0.4(14%-9%) = 0.16 or 16% Firm B: 14% + 0.5(14%-9%) = 0.165 or 16.5% The return to equity represents the return required by shareholders. In this scenario, with all other factors constant, as the Debt to Equity ratios only differ, the results show that for Firm B, the shareholders require a 0.5% higher return than Firm A shareholders, due to the higher leverage. b. given the data, we also know that Risk = variance = w^2(a)*sigma(a)^2 + w(b)^2*sigma(b)^2 + 2w(a)w(b)*p*sigma(a)*sigma(b) i. 0.52*0.052 + 0.52*0.062 + (2*0.5*0.5*1*0.05*0.06) = 0.00303 Std dev = 5.5% ii. 0.52*0.052 + 0.52*0.062 + (2*0.5*0.5*-1*0.05*0.06) = 0.00003 Std dev = 0.5% iii. 0.52*0.052 + 0.52*0.062 + (2*0.5*0.5*0.5*0.05*0.06) = 0.00228 Std dev = 4.77% c. ...

Download paper
### Related papers

Finance and Accounting Assignment
Since in this case, the payment is done at the beginning of the period every time, hence it is a case of an immediate annuity as each yearly payment is allowable to compound for an additional year as compared to the normal annuity case. In this context, Future Value of Annuity = A [{(1+i) ^n -1} / i] (Finance Formulas., n.d.) Where, A= Annual payment, i= interest rate per year, n= number of…

Finance and Accounting Individual Assignment
It was later reorganized in 2001 to become the International Accounting Standards Board (IASB). In 1973 the Financial Accounting Standards Board (FASB) was also born. The accounting standards that the FASB helps formulate for accountants in the United States are the generally accepted accounting principles (GAAP). Over 100 countries around the world are currently using the international financial…

Finance Concepts Assignment
If the estimated life of this project is 5 years and the Required Rate of Return is 10%, then we can also calculate the NPV of this project. If the NPV is also a positive value then we can safely estimate that this project will carry a good return, and the initial investment would be covered in 5 years. (Shim & Siegel, 2000). 2. Whenever one wants to finance a business, he can go for either debt…

Corporate Finance Assignment
Sales increase from year 1 to year 2 by 1.5 times, but in the 3rd year it appears that the sales only increase by 1.33 times, which shows a decline as compared to the previous financial year. Variable cost is included as a percentage of the sales for the month, which is 30% of the sales for the year. All the fixed costs are assumed to be directly attributable to the project and thus are included…

Finance and Accounting Assignment
Irrespective of such disruptions, in the year 2011, Ford completed its consecutive three years of earning profit in relation to its operating costs and, therefore, announced the payment of dividends to its valued shareholders in five years, which, in turn, has significantly motivated the company to preserve its financial efficiencies in the long run (Ford Motor Company). Thesis Statement The…

Finance assignment question
This paper will take into account depository institutions whose main purpose is to provide financial services such as loans and deposits. Some of the constituents of depository institution are commercial banks, building societies, mortgage loans and credit unions, which all fall under one mainstream of financial institution. The depository institution came into existence when people felt there was…

Strategic Corporate Finance ASSIGNMENT 2
The company had ?1.69 worth net assets per share which has been improved to?1.72 in 2011. b) Cost of Capital The following are the computations in respect of calculating the weighted average cost of capital for Marks & Spencer. The cost of equity of M&S is found to be 4.5% whereas cost of debt is found to be 4%. The overall weighted average cost of capital after accounting for the value of equity…