Calculate the value of the short put option

Assignment Help HR Management
Reference no: EM133109631

Robert Bosch GmbH is a privately held firm. As an analyst trying to determine the value of Robert Bosch GmbH's ordinary equity and bonds, you have estimated that the market value of the firm's assets is €50 million. The standard deviation of the asset return is estimated to be 0.2. The debt of Robert Bosch GmbH, which consists of zero-coupon bank loans, will come due 2 years from now and its face value is €40 million. Assume the risk-free rate is 3% p.a. (annually compounded). Determine the market value of debt using the binomial model. Use one binomial period. Interpret risky debt as a portfolio of risk-free debt and a short put on the assets of a firm, with a strike price equal to the face value of debt.

a) Calculate u and d. Note that the volatility is annual but the binomial period lasts for two years.

b) Calculate the risk-neutral probabilities. Note that the interest rate is quoted per annum but the binomial period lasts for two years.

c) Calculate the value of the short put option.

d) Calculate the market value of debt as the difference between the (discounted) debt face value and the value of the short put.

Reference no: EM133109631

Questions Cloud

Discuss dominant leadership worldviews : Identify and discuss dominant leadership worldviews in your organization. What are they? How are they expressed?
Calculate the future value in five years : Calculate the future value in five years of $9,000 received today if your investments pay for the following interest rates. (Do not round intermediate calculati
Discuss the merits and limitations of ratio analysis : a) Discuss the merits and limitations of ratio analysis.
How much is the net income for matalino company : On January 1, 2021 Asset of Matalino Company was P2,500,000 and its liabilities was P800,000. How much is the net income for Matalino Company
Calculate the value of the short put option : Robert Bosch GmbH is a privately held firm. As an analyst trying to determine the value of Robert Bosch GmbH's ordinary equity and bonds, you have estimated tha
How much purchases should be reported on the statement : Payments on the accounts payable during the year 800,000. How much purchases should be reported on the statement of comprehensive income for the year
Job satisfaction : Articulate what plan of action you would take to address Graham's attitude. What is the reasoning for your actions?
Greater the potential retirement income benefit : Which of the following retirement plans are directly connected to the size of the investment portfolio? In other words, the larger the investment portfolio, the
Construct a cash flow statement for sumanta : Sumanta works as an insurance advisor at a financial planning firm, where he has an after-tax annual income of $52,000. Construct a cash flow statement

Reviews

Write a Review

HR Management Questions & Answers

  Improve problem solving capabilities within organization

Types of teams as to their effectiveness that will improve problem solving capabilities within organizations.

  Influence tactics help in reducing organizations politics

Explain the different types of influence tactics that will be of a help “if adopted” in reducing the organizational politics.

  Report on citigroup''s hr service level agreement

Human Resources or Human Resource Management deals with HR Service Level Agreement. HR Service Level Agreement is an agreement made between the employer and the employee, which states that the employee would work under any client and sometimes any ti..

  A project report on hrm

Human Resource Management as the name suggests, it is a management discipline which deals with the human i.e. the workforce aspect of organizations. Need and practices of HRM are inevitable in present scenario of extreme competition where "Talent War..

  Hrp: recruitment and selection

Recruitment and Selection is the initial ladder of any Human Resource Planning process and contains an immense significance for any organisation.

  A project report on study of statutory complainces

Statutory compliance and its immense knowledge are crucial to be understood in an organization. It contains all the forms, procedures and acts applicable in a company.

  Operant conditioning and Reinforcement

Operant conditioning is a learning process where behaviour is controlled by its consequences. In this process an individual's behaviour can be modified through the use of positive or negative reinforcement.

  Effectiveness of training programs in achieving customers an

The main motive for conducting this research is to provide broad range of research of the literature and their reviews related to training and development and assisting the employees in providing customers satisfaction.

  A critical analysis of hr processes and practices in fedex c

FedEx is illustrious for its novel HR processes and practices that have greatly accounted for its success.

  Integrating culture and diversity in decision making

People in the organization are known as Google where they share common goals and have common vision.

  Impact of employee attrition on people management in organis

Talent management implies recognizing a person's inherent skills, traits, personality and offering him a matching job.

  Labour dissonance at maruti suzuki india limited: a case stu

This Case Study focuses on various issues related to Labour Unrest at Maruti Suzuki India Limited.

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