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Implied Volatility of​ Assets Assignment | Homework For You

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May 27th, 2020

The J. Miles Corp. has 25 million shares outstanding with a share price of $ 20 per share. Miles also has outstanding​ zero-coupon debt with a 5​-year ​maturity, a face value of $ 900 ​million, and a yield to maturity of 9 %. The​ risk-free interest rate is 5 %.Homework For You

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a. What is the implied volatility of​ Miles’ assets?

b. What is the minimum profitability index required for equity holders to gain by funding a new investment that does not change the volatility of​ Miles’ assets?

c. Suppose Miles is considering investing cash on hand in a new investment that will increase the volatility of its assets by 10 %. What is the minimum NPV such that this investment will increase the value of​ Miles’ shares?

The J. Miles Corp. has 25 million shares outstanding with a share price of $ 20 per share. Miles also has outstanding​ zero-coupon debt with a 5​-year ​maturity, a face value of $ 900 ​million, and a yield to maturity of 9 %. The​ risk-free interest rate is 5 %.

a. What is the implied volatility of​ Miles’ assets?

b. What is the minimum profitability index required for equity holders to gain by funding a new investment that does not change the volatility of​ Miles’ assets?

c. Suppose Miles is considering investing cash on hand in a new investment that will increase the volatility of its assets by 10 %. What is the minimum NPV such that this investment will increase the value of​ Miles’ shares? Get Finance homework help today

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