Construct a replicating portfolio

Assignment Help Financial Management
Reference no: EM131996541

A stock price is currently $40. It is known that at the end of one month it will be either $42 or $38. The risk free interest rate is zero.

Use the risk neutral probability measure approach to find the price of a one-month European call option with a strike price of $39.

Construct a replicating portfolio.

Reference no: EM131996541

Questions Cloud

How much would an investor be willing to pay for this stock : Analysts expect dividends to grow at a rate of 20% for three years, 15% for the following two years, and then slow to a constant rate of 10% thereafter.
What will a beta book compute as the adjusted beta : Suppose that you estimate the following regression describing the evolution of beta over time.
What must the market risk of the stock be : If Treasury bills yield 5% and investors believe that the stock offers a satisfactory expected return, what must the market risk of the stock be?
Average daily sales : What is the probability that Mr Wood's average daily sales will be between 16 and 26 business suits?
Construct a replicating portfolio : A stock price is currently $40. It is known that at the end of one month it will be either $42 or $38. The risk free interest rate is zero.
Properties of least square estimator for linear regression : a) What are important principles of least square estimation for the linear regression
What is the option delta : The stock price of Heavy Metal (HM) changes only once a month: either it goes up by 20% or it falls by 16.7%. Its price now is $40.
Suppose we have the durbin-watson statistic : Suppose we have the Durbin-Watson statistic is equal to 3.0 from the regression residual, Does this result indicate that error terms are independent?
What is the capitalization of the market portfolio : The share prices for stocks A and B are $15 and $5, respectively. What is the capitalization of the market portfolio?

Reviews

Write a Review

Financial Management Questions & Answers

  Find formula for compound interest with annual contributions

Find the formula for compound interest with annual contributions that go up by $100 each year? Like 100 first year and 300 the third year.

  Calculate the firms cost of retained earnings

Calculate the firms cost of retained earnings. calculate the firms cost of new common equity. What is the firms after tax cost of new debt?

  The hamptons home of famed socialite hits the market

Calculate the annual compound growth rate of the house price during the period when the house was owned by Robert G.

  Antitrust policy can preclude the acquisition of competitor

Antitrust policy can preclude the acquisition of a competitor. The dividend yield is the cash dividend divided by the current market price of the stock. Basic earnings per share include all convertible bonds outstanding.  Investors will generally cho..

  Assume that project being considered has normal cash flows

Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows. A project’s NPV is found by compounding the cash inflows at the IRR to find the terminal value (TV), then discounting the TV at the WACC..

  How much you need to deposit in equal annual payments

Assume that you want to have $40,000 in your saving account in year 2026. If your account earns 5% annually and you deposit $7,000 today, calculate how much you need to deposit in equal annual payments in the each of the remaining years to achieve sa..

  How much should he set aside today for the purchase

How much should he set aside today for the purchase?

  Used as the initial cash flow

Dilwater Furniture purchased a corner lot in Pittsburg five years ago at a cost of $890,000. The lot was recently appraised at $1,070,000. At the time of the purchase, the company spent $80,000 to grade the lot and another $120,000 to pave the lot fo..

  Asset whose value is based on expected future cash flows

The value of an asset whose value is based on expected future cash flows is determined by the present value of all future cash flows the assets will generate. Given the case scenario and target audience provided, select and discuss a simple asset sit..

  What is bonds yield to maturity using a financial calculator

An investor is considering purchasing a bond with a 6.6% coupon interest rate, a par value of $1000. , and a market price of 1079.36.. the bond will mature in 9 years... What is the bonds current yield What is the bonds approximate yield to maturity ..

  Expansion project-requires initial fixed asset investment

Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.61 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to g..

  Tax basis taxpayer allowed to claim deduction for bad debt

Under what circumstances, if any, is a tax basis taxpayer allowed to claim a deduction for a bad debt? An accrual basis tax payer? Please provide examples or support with your response.

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