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Consider a market with one stock and one bond, with the following assumptions on parameters: mu and sigma > 0 are constant but the interest rate is r (t) = a + bt for some constants a and b. Find the value at t = 0 for the European call option with the strike price K and maturity T. Note that this is the same option as in the usual Black-Scholes formula but the assumptions on the interest rate are different. Your answer has to be explicit in the sense that one could feed it into a computer program, just like the Black-Scholes formula. The formula may contain integrals. It is not necessary to simplify the formula.
Storico Co. just paid a dividend of $1.90 per share. The company will increase its dividend by 20 percent next year and will then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent divid..
Assessing Insurance Company Operations- As a consultant to an insurance company, you have been asked to assess the asset composition of the company. The insurance company has recently sold a large amount of bonds and invested the proceeds in real est..
You want to have $4 million in real dollars in an account when you retire in 40 years. The nominal return on your investment is 13 percent and the inflation rate is 4.5 percent. What real amount must you deposit each year to achieve your goal? (Do no..
Based on the data provided here, how would an appraiser establish an estimate of value?- What other information would be desirable in reaching a conclusion about the probable value for the property?
You purchased a zero coupon bond one year ago for $173.85. The market interest rate is now 9 percent. If the bond had 20 years to maturity when you originally purchased it, what was your total return for the past year? Assume semiannual compounding. ..
You own a put option on Ford Stock with a strike price of $10. The opti?on will expire in exactly six months time. If the stock is trading at $8 in 6 months, what will be the payoff of the put? Draw a payoff diagram showing the value of the put at ex..
Suppose 1-year T-bills currently yield 7% and the future inflation rate is expected to be constant at 3.2%per year. What is the real risk-free rate of return, r*? Disregard any cross product terms.
The industry life cycle is not a given; it is affected by the strategic decisions made by the firms in the industry. Give one or more examples of strategic decisions that can affect the dynamics of an industry. Explain how these strategic issues can ..
Five years ago, NorthWest Water (NWW) issued $50,000,000 face value of 30-year bonds carrying a 14% (annual payment) coupon. NWW is now considering refunding these bonds. It has been amortizing $3 million of flotation costs on these bonds over their ..
Explain and discuss the income taxation of retirement benefits, including required minimum distributions, inherited pension benefits, etc. Give some examples.
Big Brothers Inc, borrows 149,623 from the bank at 8.35% compounded annually. This loan is to be repaid in equal annual installments at the end of each year over the next 9 years, How much will the annual payment be?
2012 Income Statement Net sales $ 7,600 Cost of goods sold 6,650 Depreciation 210 Earnings before interest and taxes $ 740 Interest paid 55 Taxable Income $ 685 Taxes 230 Net income $ 455 Dividends $ 194 Major Manuscripts, Inc. 2012 Balance Sheet 201..
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