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Consider a stock St and a plain vanilla, at-the-money, put option written on this stock. The option expires at time t + Δ, where Δ denotes a small interval. At time t, there are only two possible ways the St can move. It can either go up to Sut+Δ, of go down to Sut+Δ. Also available to traders is risk-free borrowing and lending at annual rate r.
(a) Using the arbitrage theorem, write down a three-equation system with two states that gives the arbitrage-free values of Sr and Ct.
(b) Now plot a two-step binomial tree for St. suppose at every node of the tree the markets are arbitrage-free. How many three-equation systems similar to the preceding case could then be written for entire tree?
(c) Can you find a three-equation system with 4 states that corresponds to the same tree?
(d) How do we know that all the implied state prices are internally consistent?
The company paid$7,842 as dividends. If the retained earnings is 2006 were $50,877, what are the retained earnings in 2007?
Using the Excel program, for the period mentioned, prepares tables showing the exchange rate movement daily (M - F), prepare a Trend Line; compute the mean and standard deviation of the trend
To offset your overhead, you want to charge your customers an EAR (or EFF%) that is 2% more than the bank is charging you. What APR rate should you charge your customers?
Calculate the future value of an investment
melissas wealthy uncle gives her 10000 as a graduation gift. melissa wishes to save this money and get an early start
If the objective is to keep the price level the same next yr illustrate what percentage increase in the money supply should the central bank plan
Harrison Clothiers' stock currently sells for $17 a share. It just paid a dividend of $3.5 a share ( that is, D - 3.5). The dividend is expected to grow at a constant rate of 8% a year.
David Abbot is interested in purchasing a bond issued by Sony. He has obtained the following information on the security: Par Value: $1,000 Cost: $920 Coupon rate: 7.5% Years to maturity: 10 Tax Bracket 35%.
What is the value in 2010? What is Ackman's value?
For our project, we will be studying Lollicup. It is a popular chain cafe serving bubble tea and snacks in the University Village. It is a cafe that sells drinks with many different toppings like pudding, grass jelly, and boba. It also serves food..
Slattery Corp had year-end retained earnings balances of $670,000 in 2008 and $600,000 in 2009. In 2009 the firm paid $6,000 in preferred dividends and $10,000 in common dividends. What was the Firm's EAT IN 2009?
Maximum Bank has analyzed the accounts receivable of Scientific Software, Inc. The bank has chosen eight accounts totaling $134,000 that it will accept as collateral. The bank's terms include a lending rate set at prime plus 3% and a 2% commission ch..
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