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“Binary options are options with discontinuous payoffs. A simple example of a binary option is a cash-or-nothing call. This pays off nothing if the asset price ends up below the strike price at time T and pays a fixed amount, Q, if it ends up above the strike price. In a risk-neutral world, the probability of the asset price being above the strike price at the maturity of an option is, with our usual notation, N(d2). The value of a cash-or-nothing call is therefore Qe-rTN(d2). A cash-or-nothing put is defined analogously to a cash-or-nothing call. It pays off Q if the asset price is below the strike price and nothing if it is above the strike price. The value of a cash-or-nothing put is Qe-rTN(-d2).”
Using Excel (or otherwise), calculate the price of a binary call option on your stock maturing on
January 19, 2018 that pays $100 if the stock price ends up below the strike that is closest to being at-the-money and zero otherwise (give your answer in dollars, to 4 d.p.).
Redneck Farm Equipment owes $48,329 in tax on a taxable income of $549,600. The company has determined that it will owe $56,211 in tax if its taxable income rises to $565,000. What is the marginal tax rate at this level of income?
A person has a net asset of $1 million, including a $300,000 net equity of a house (market value of the house – mortgage). Specifically, the house has a market value of $600,000 including $400,000 for the structure and $200,000 for the land, and a mo..
Suppose there are two assets available to an investor. One is risk-free and has a return of 3 percent. The other is risky and has an expected return of 8 percent and a variance of 0.05. The investor’s utility is given by U(r) = (2/3) E(r) − (1/2) AV ..
Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt. Vandell's debt interest rate is 7.9%. Vandell's free cash flow (FCF0) is $2 million ..
A couple will retire in 50 years; they plan to spend about $30,000 a year in retirement, which should last about 25 years. They believe that they can earn 8% nominal interest on retirement savings.
Yield to maturity Moe’s Inc. has bonds outstanding with a par value of $1000 and 10 years to maturity. These bonds pay a coupon of $45 every six months. Current market conditions are such that the bond sells for $938. Calculate the yield to maturity ..
Compute the taxable gain and tax due for each of the following cases, assuming that your tax bracket is 28 percent. Assume 100 shares and 100 calls.
estimate its risk-adjusted rate of return. What is its risk-adjusted rate of return and its stock price?
Karen is the named insured under a PAP that provides coverage for bodily injury and property damage liability, medical payments, and uninsured motorists coverage. For each of the following situations, briefly explain whether the claim is covered b..
what would this mean for the exposure of- Canadian residents holding Canadian dollar-denominated bonds?- US residents holding Canadian-dollar bonds?
You are trying to pick the least-expensive car for your new delivery service. If the business has a cost of capital of 13 percent, calculate the EAC.
You recently approached your bank about establishing a credit line facility. The terms offered by your bank include a nominal rate of prime + 1.5% (prime is currently 5%) on the amount borrowed, a commitment fee of 25 basis points on the unused porti..
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