Calculate the value of the put if stock price decreases

Assignment Help Financial Accounting
Reference no: EM132762047

The current stock price is $800. The stock price will either increase by 10% or decrease by 10% in the first month. If the price increases in the first month, it will go up by $200 or down by $150 in the second month. If the price decreases in the first month, it will go up by 10% or down by 10% in the second month. The risk-free interest rate is 4% per month. Assume there is a 2-month put option with an exercise price of $800.

Problem a) Use the replicating portfolio approach to calculate the value of the put if stock price increases in the first month.

Problem b) Use the risk neutral probability approach to calculate the value of the put if stock price decreases in the first month.

Problem c) Use either approach to calculate the 2-month put premium today.

Reference no: EM132762047

Questions Cloud

Find the highest point reached by the coin : FREE FALLA coin is tossed upward at an initial velocity of 5m/s.= 1.27m
Prepare the journal entry to record the declaration : EC Corporation has outstanding 3,000,000 shares of common stock of a par value of P10 each. Prepare the journal entry to record the declaration
How much of the net income is allocated to xavier : Salary allowances of $38,000 and $28,000, respectively; and the remainder to be divided equally. How much of the net income of $77,000 is allocated to Xavier?
What is the nature of Hank gain or loss : What is the nature of Hank's gain or loss on the subsequent sales of the homes to another buyer? Assume that most of the homes are sold at a loss
Calculate the value of the put if stock price decreases : The current stock price is $800. Use the risk neutral probability approach to calculate the value of the put if stock price decreases in the first month.
What is the amount that it will record for depreciation : What is the amount that it will record for depreciation of this right-of-use asset for its year-ended December 31, 20X4
Which are the implications of financing through debt : Which are the implications of financing through debt and compare to the implications of financing through equity. What are the pros and cons of each method?
How much it will save : If Z Company makes the part next year instead of buying it, and production next year is expected to be 3,300 units, it will save how much
Health policy project pursuant to outline : In 1972 marijuana was placed in Schedule 1 of the Controlled Substances Act as such US government considered it to have not accepted medical use in treatment

Reviews

Write a Review

Financial Accounting Questions & Answers

  Financial statement analysis and preparation

Financial Statement Analysis and Preparation

  Shareholder of a company

Describe the ways that a person can become a shareholder of a company. Why Wal-Mart would split its stock?

  Financial and accounting principles

An understanding of financial and accounting principles can be a valuable tool for managers. While not all managers will find themselves calculating financial ratios or preparing annual financial data.

  Prepare a statement of cash flow using the direct method

Prepare a Statement of Cash Flow using the Direct Method and Prepare the Operations section of the Statement of Cash Flow using the Indirect Method.

  Financial accounting assignment

This assignment has one case study and two question apart from case study. Questions related to document Liquidation question and Company financial statements question - Torquay Limited

  Prepare general journal entries for goela

Prepare general journal entries for Goela Ltd

  Principles of financial accounting

Prepare the journal entry to record the acquisition of the assets.

  Prepare general journal entries to record the transactions

Prepare general journal entries to record the transactions, assuming use of the periodic inventory system

  Global reporting initiative

Compare the view espoused by the economist Milton Friedman about the social responsibilities of business with the views express by Stigler.

  Explain the iasb conceptual frameworks

Explain the IASB Conceptual Framework's perspective of users and their decisions.

  Determine the company''s financial statements

T he focus of the report is to determine the extent to which you are comfortable relying on the financial statements as presented by management .

  Computation of free cash flow

Computation of Free Cash Flow

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