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Assume that a stock call option expires in one year; and has the strike price of $40. The underlying stock is currently selling for $41. The risk-free rate of interest is 8%.
a. Prove that buying a call is just like buying stocks with leverage.
b. How would you find how many stocks you should buy with how much of borrowed funds?
c. Compute the value of the call.
d. Calculate the risk-neutral probability
Winter Time Adventures is going to pay an annual dividend of $2.86 a share on its common stock next year. This year, the company paid a dividend of $2.75 a share. The company adheres to a constant rate of growth dividend policy. If the current stock ..
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If at expiration AMZN is trading at $966, what is your net profit on this position?
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Ballack Co.’s common stock currently sells for $49.00 per share. The growth rate is a constant 11.2%, and the company has an expected dividend yield of 6%. The expected long-run dividend payout ratio is 20%, and the expected return on equity (ROE) is..
What decisions should she make regarding these projects if she assigns them a mandatory discount rate of 8.5 percent? Explain why
The risk-free rate is 10 percent. Determine the price today of the option. Then construct a risk free hedge of long stock and short option.
Suppose you buy a put option contract on October gold futures with a strike price of $400 per ounce.
A man was on his deathbed, and wanted to settle his estate with a will. calculate how many ducats each would receive.
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