Calculate the value of the call option

Assignment Help Financial Management
Reference no: EM131315664

Temex Foods stock currently sells for $48. A call option on this stock is available, with a strike price of $45 and an expiration date six months in the future. The standard deviation of the stock's return is 45 percent, and the risk-free interest rate is 4 percent.

Calculate the value of the call option. Next, use the put-call parity to determine the value of a Temex put option that also has a $45 strike price and six months until expiration.

Reference no: EM131315664

Questions Cloud

What is the price of the call option : If the risk-free rate equals 6 percent and the standard deviation of the stock's return is 40 percent, what is the price of the call option?
Change in business world with employees and managers : Mentoring has become a growing change in the business world with employees and managers. In fact, there are a number of websites devoted to the field of executive and managerial mentoring -- but many companies (and universities) are starting mento..
Determine the minimum value of the sampling frequency : If the highest frequency to be processed is 50 kHz, determine the minimum value of the sampling frequency Fs that can be used.
What ethical responsibility does the consultant have : What ethical responsibility does the consultant have in the relationship with the client company?Are there any industry-specific ethical standards that should also be considered?Are any industry-specific ethical standards impacting productivity at th..
Calculate the value of the call option : Calculate the value of the call option. Next, use the put-call parity to determine the value of a Temex put option that also has a $45 strike price and six months until expiration.
What is the conversion premium : A convertible bond has a par value of $1,000 and a conversion ratio of 20. If the underlying stock currently sells for $40 and the bond sells at par, what is the conversion premium?
Summarize an example of an effective supervisor : Summarize an example of an effective supervisor. How does this type of supervisor contribute to employee satisfaction? Summarize an example of an ineffective supervisor. Did this supervisor undermine employee satisfaction? Can this type of behavior ..
Determine and sketch the magnitude and the phase responses : Consider an LTID system specified by the equation y[n + 1] - 0.5y[n] = x[n + 1] + 0.8x[n].
Could there be unforeseen ethical implications : How will your proposed changes have a personal impact on the employees within the case study company?Could there be unforeseen ethical implications?How do the changes you propose align with your personal values of how employees should be treated?

Reviews

Write a Review

Financial Management Questions & Answers

  Determine the total amount paid over the term of the loan

Consider a home mortgage of $200,000 at a fixed APR of 4.5% for 25 years. Calculate the monthly payment. Determine the total amount paid over the term of the loan. Of the total amount paid, what percentage is paid toward the principal and what percen..

  Preferred dividends paid-earnings after taxes

Farah Snack Co. has earnings after taxes of $150,000. Interest expense for the year was $20,000; preferred dividends paid were $20,000; and common dividends paid were $30,000. Taxes were $22,500. The firm has 100,000 shares of common stock outstandin..

  Cost of the party as an entertainment expense

Evander, an officer in the Marine Corps, was appointed commanding officer of the Marine training base in Beaufort, S.C. As is customary in connection with changes in command, he hosts a party at his home for officers and guests the night before he as..

  Draw an ammortization schedule

A bank has provided you with a loan valued at a cost of K1,000 and you agree to repay the balance in 3 equal instalments that include principal paid at the end of each period with 10% intrest componded annually. Find the repayment to be made each tim..

  Federal bankruptcy law deal only with corporate bankruptcies

Federal bankruptcy law deals only with corporate bankruptcies. Municipal and personal bankruptcy are governed solely by state laws. All bankruptcy petitions are filed by creditors seeking to protect their claims against firms in financial distress. T..

  What is pretax cost of debt for firm-aftertax cost of debt

The weighted-average cost of capital for a firm with a 65/35 debt/equity split, 8% pre-tax cost of debt, 15% cost of equity, and a 35% tax rate would be: What is the pretax cost of debt for a firm in the 35% tax bracket that has a 10% aftertax cost o..

  What are arithmetic and geometric returns for the stock

A stock has had the following year-end prices and dividends: Year Price Dividend 1 $ 65.03 — 2 71.90 $ 0.74 3 77.70 0.79 4 63.97 0.85 5 74.51 0.94 6 86.75 1.01 Required: What are the arithmetic and geometric returns for the stock?

  Raise the normal interest rate by open market operations

Suppose the Fed Wants to raise the normal interest rate by open market operations, changing the reserve requirement, or changing the discount rate. Draw a graph of the money market to show how the Fed's action translates into a high nominal interest ..

  The linear relation between an assets expected return

The linear relation between an assets expected return and its Beta coefficient is the:

  Financial statement analysis

Prepare income statements and vertical common-size balance sheets for both companies - Prepare ratio analyses

  Determine appropriate four year forward rate premium

Assume that the annual U.S. return is expected to be 7% for each of the next 4 years, while the annual interest rate in Mexico is expected to be 20%. Determine the appropriate 4 year forward rate premium or discount on the Mexican peso which could be..

  How are the inputs transformed into the outputs

Explain how the table below works, i.e., what are the inputs, what are the outputs, and how are the inputs transformed into the outputs and explain how the investment in working capital changes (compared to the amount in Q2a) and why.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd