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Suppose the price of a stock is $100 today and it evolves according to u= 1.1 and d= 0.8 in 6-month periods.
A. Draw and label a tree that shows the price of the stock today, after 6-months and after 1 year.
B. A put option on the stock has exercise price $90 and expires in one year. Denote the price of this put option today as P put and then Pu,Pd, and, Puu, Pud, Pdu, Pdd the payoffs after 6 months and 1 year respectively. Calculate Puu, Pud, Pdu, Pdd.
C. Find the price of such a put option by using the replication method of a call option. Assume the 6-month risk-free interest rate is 2 percent
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An employee's salaries tax return for a year of assessment shows:
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Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the table below. Bond Coupon Rate Price Quote Maturity Face Value 1 8.70 % 105.2 7 years $ 22,000,000 2 7.00 95.2 10 years 42,000,000 3..
A capital investment project is estimated to have the following after-tax cash flows: The company utilizes a 8% discount rate for capital project analysis.
You are considering the purchase of one of two machines required in your production process. Machine A has a life of two years. Machine A costs $50 initially and then $70 per year in maintenance. Machine B has an initial cost of $90. It requires $40 ..
Find the optimal solution using the graphical solution procedure. If the objective function is changed to 2A + 6B, what will the optimal solution be? How many extreme points are there? What are the values of A and B at each extreme point?
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