Determine the price of prepaid forward for delivery

Assignment Help Financial Management

Reference no: EM131937267

A 6-month forward start option will, 6-months from today, provide its owner a 6-month European call on the non-dividend paying stock ? with strike equal to 95% of the stock price at that time. The volatility of ? is .3, and the continuously compounded risk free interest rate is 4%. The current price of ? is $80.00 per share.

(a) Determine the price of a prepaid forward for delivery of 1-share of ? in 6 months.

(b) The price of the forward start option is DS(1/2) for some number D, where S(1/2) is the cost per share of ? in 6 months. Determine the value of D assuming Black-Scholes.

Reference no: EM131937267

Questions Cloud

Firm can maintain without resorting to additional equity : What is the maximum possible dividend payout rate the firm can maintain without resorting to additional equity issues?

Dividend is paid just before the delivery of stock : Assuming that the last dividend is paid just before the delivery of the stock, and the annual effective interest rate is 4%.

Calculate corey risk-free profit : What is the correct price for a 1-year prepaid forward on O? Calculate Corey's risk-free profit.

Discuss strategic financial planning : Discuss accounting concepts, capital, and cash management. Discuss strategic financial planning.

Determine the price of prepaid forward for delivery : Determine the price today of the forward start option assuming Black-Scholes. Determine the price of a prepaid forward for delivery of 1-share of ? in 6 months.

Considering investing in project with the cash flows : Suppose your firm is considering investing in a project with the cash flows. And that maximum allowable paycheck and discounted payback statistics for project.

What is the expected profit of the new branch : King, Inc., a successful Midwest firm, is considering opening a branch office on the west coast. What is the expected profit of the new branch?

Decision making strategies applied to financial management : Discuss mechanisms to create decision making strategies as applied to financial management.

The forward start option assuming black-scholes : Determine the price today of the forward start option assuming Black-Scholes. Determine the price of a prepaid forward for delivery of 1-share of ? in 6 months.

User Account

All Pages