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A bank risk manager tries to value a European put option. The current stock price is 100, the strike price 105, the time to maturity 2 years, the risk-free rate 0.05 and the volatility of the stock 0.4. Assume no dividends.
a. Calculate the value of this put option using the Black-Scholes formula. Provide the calculation of the different steps as discussed in the tutorial.
b. The bank manager also tries to value the put option using a Monte Carlo simulation. Simulate the stock price at the option expiration date for 1000 trials. Report the simulated stock price and the option payoff for the first 3 trials. Report your calculations and answers in 2 decimal digits.
Which of the four financial objectives of a firm, profitability, liquidity, efficiency, or stability, does participating in a buying cooperative contribute?
Using the genotypes found in part a, what is the expected ratio of PHENOTYPES when these two squirrels are mated?
What percent of the Quebec population would you expect to be homozygous for the normal (non-disease) allele?
A firm projects an ROE of 20% and it will maintain a plowback ratio of .30. The next year's earning are expected to be $2.0/per share. Assume investors expect 12% rate of return on the stock. Consider the dividends are expected to grow at a constant..
Assume that you are selected to manage the Portfolio. In addition, suppose that the maximum additional stress level (i.e., maximum marginal loss of utility)
If the interest is compounded more than once per year, which rate is higher, the stated rate or the effective rate?
What is the yaer 0 project cash flow?c. What are the project's annual cash flows during years 1, 2, ,and 3? Should the maching be purchased? Explain your answer.
In September 2008, the IRS changed tax laws to allow banks to utilize the tax loss carryforwards of banks they acquire to shield their future income from taxes?
Acetate, Corporation, has equity with a market value of $20 million and debt with a market value of $10 million. The cost of the debt is 14% every year. Treasury bills that mature in one year yield 8% per annum,
a. What is your estimate of the intrinsic value of a share of the stock?
What is the market required rate of return on the PCJ stock?
Evaluate the Congresswoman's argument and the likely effects of the bill on the banking system.
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