Cost of the option

Assignment Help Finance Basics
Reference no: EM132555264

Suppose a US equity portfolio is currently worth US$50 million and the S&P500 index is at 1000 points. If the value of the portfolio mirrors the value of the index points, what options should be purchased to hedge against the value of the portfolio from falling below US$45 million (i.e. 10% of the current value) in one year's time? Show that with the purchased option, the portfolio value will never fall below US$45 million in one year's time, excluding the cost of the option. Note that each option on the S&P500 covers a value equal to $100 times the index point (i.e. contract multiplier=100).

Reference no: EM132555264

Questions Cloud

What are the major parts of time value of money : What are the major parts of time value of money? Discuss in detail why present value is called discounting and why
Current weighted average cost of capital : NASA's stock beta is 1.15, its bond rating is AA and following is some income statement data:
Intrinsic value of equity share of xy limited : What is the intrinsic value of equity share of XY limited ?.Take a 7 year time frame for your calculation.
What is the principal : What is the principal from which $329.00 can be withdrawn at the end of each month for 15.5 years if interest is 4% compounded quarterly?
Cost of the option : Suppose a US equity portfolio is currently worth US$50 million and the S&P500 index is at 1000 points. If the value
Fixed asset turnover or total asset turnover ratio : Which would be more helpful to your firm: fixed asset turnover or total asset turnover ratio?
Good understanding in financial health of corporation : What ratios are important in providing a good understanding in the financial health of a corporation?
Black-scholes-merton formula : Calculate the call price using the Black-Scholes-Merton formula.
Calculate the accumulated value after ten years : Calculate the accumulated value after ten years of payments of $13200.00 made at the end of each month

Reviews

Write a Review

Finance Basics Questions & Answers

  Assumptions of efficient market hypothesis

Explain what is meant by market efficiency and efficient market hypothesis and describe the following:

  What can be the benefits and risks of implementing

What can be the benefits and risks of implementing “Virtual Integration”? List at least 3 benefits and 3 challenges for full credit.

  By how much did the company retained earnings increase

Polycom Systems earned $553 million last year and paid out 25 percent of earnings in dividends.

  Women in the development of modern houses

Where is the place of women in the development of modern houses (from early to mid 1900s)?

  Calculate the after-tax cost of borrowing

a. Calculate the after-tax cost of borrowing from the motorcycle dealership. b. Calculate the after-tax cost of borrowing through a second mortgage on Bella's home.

  What is the total dollar return per share to date

Stock pays quarterly dividends of $.40 per share. Today, stock is worth $34.60 per share. What is total dollar return per share to date from this investment?

  What part of trend-line value

Trend-line Inc. has been growing at a rate of 6 percent per year and is expected to continue to do so indefinitely. The next dividend is expected

  Which of the following is the most likely explanation

Firms A and B have identical gross profit margins but B has a smaller operating profit margin. Which of the following is the most likely explanation?

  What is the payback period

What is the net present value of a project with the following cash flows if the discount rate is 11 percent?

  What is the npv of the project in swiss francs

What is the required return on franc flows? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.

  Calculate the npv for both projects

a. Calculate the NPV for both projects if the opportunity cost of capital is 16%.

  Define a corporate stakeholder

Define a corporate stakeholder. Which groups are considered stakeholders? Would stockholders also be considered stakeholders?

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