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If the Balck-Scholes model shares common intuitions with risk-neutral option pricing model (also known as the binomial option pricing model. One of the biggest underlying assumptions of risk-neurtral binomial model is that we live in a risk-neutral world. In a risk-neutral wrold, all investors only demand risk-free return on all assets. Although the risk-neutral assumption is counterfactual, it is brilliant and desirable because the prices of an option estimated by risk-neutral approach are exactly the same with or without the risk-neutral assumption. Why that is the case and how risk-neurtal assumption greatly simplifies the calculaitons of risk-neutral option pricing approach?
Journalizing and posting an adjusting entry for office supplies On November 1, Carley Equipment had a beginning balance in the Office Supplies account.
(Bond valuation relationships) The 13-year, $1,000 par value bonds of Waco Industries pay 8 percent interest annually. The market price of the bond is $1,065, and the market's required yield to maturity on a comparable-risk bond is 6 percent.
The following contract does not have a SFAS 133 Paragraph 6 notional in a clear sense. Company C pays $100,000 for an option to receive $2 million if the average LIBOR for the next 12 months exceeds 8%. Is this option contract subject to SFAS 133 ..
a preferred stock pay a 5 percent annual dividend per share and provides investors with a 12 percent rate of return.
The unemployment rate in a city is 12%. If 9 people from the city are sampled at random, find the probability that fewer than 2 of them are unemployed. Carry your intermediate computations to at least four decimal places, and round your answer to a..
What amount of gain has Patriot received from this transaction and this a capital or ordinary gain?
Investment Analysis through Incremental Analysis and compute the incremental net income of the investment for each year
Computation stock price and return by Gordon growth model and The dividend is expected to grow at a constant rate of 6 percent a year
Last year's asset turnover ratio was 2.0. Sales have increased by 25% and average total assets have increased by 10% since that time. What is the current asset turnover ratio? A. 1.82 B. 2.05 C. 2.15 D. 2.27
A project has an initial cost of $8,600 and produces cash inflows of $3,200, $4,900, and $1,500 over the next three years, respectively. What is the discounted payback period if the required rate of return is 8%?
Union Pacific Railroad reported net income of $770 million in 1993, after interest expenses of $320 million. (The corporate tax rate was 36%).
By what percentage did the cross-exchange rate of the Polish zloty in Swedish kronor (that is, the number of kronor that can be purchased with one zloty) change over the last year?
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