Equalize the range of payoffs for the stock and the option

Assignment Help Finance Basics

Reference no: EM13291606

Stewart Enterprises' current stock price is $60 per share. Call options for this stock exist that permit the holder to purchase one share at an exercise price of $45. These options will expire at the end of 1 year, at which time Stewart's stock will be selling at one of two prices, $40 or $70. The risk-free rate is 7%. As an assistant to the firm's treasurer, you have been asked to perform the following tasks to arrive at the value of the firm's call options.

b.Equalize the range of payoffs for the stock and the option. (Round your answer to two decimal places) The ratio of ending price to ending stock value is

c.Create a riskless hedged investment. (Round your answer to two decimal places) Portfolio value is

d.What is the cost of the stock in the riskless portfolio? (Round your answer to two decimal places)

e.What is the present value of the riskless portfolio? (Round your answer to two decimal places.)

f.From your answers in Parts d and e, what is the value of the firm's call option? (Round your answer to two decimal places.)

Reference no: EM13291606

Questions Cloud

Obtain how much charged has flowed during lightning bolt : In a lightning bolt, a large amount of charge flows during a time of 2.9 x 10-3 s. Assume that the bolt can be represented as a long, How much charged has flowed during the lightning bolt?

Describe the management objectives of a firm : Describe the management objectives of a firm governed by the shareholder wealth maximization model and one governed by the stakeholder wealth maximization model.

Should the firm lease or buy : The lease terms, which include maintenance, call for a $10,000 lease payment (4 payments total) at the beginning of each year. DTC's tax rate is 40%.

Estimate the wave speed : The equation of a transverse wave on a string is y = (6.1 mm) sin[(30 m-1)x + (300 s-1)t], What is the wave speed

Equalize the range of payoffs for the stock and the option : .Equalize the range of payoffs for the stock and the option. (Round your answer to two decimal places) The ratio of ending price to ending stock value is

Hiring someone to do penetration testing : What are the security principles a company must adhere to when hiring someone to do penetration testing?

Calculate the unlevered value of yancey : Using the Unlevered Value from above calculate VL and rsL by using the M&M Model (with taxes) for Yancey using $8.0 Million Debt costing 8%.

What is the transverse speed for a point on the string : The function y(x, t) = (25.0 cm) cos(?x - 26?t), with x in meters and t in seconds, describes a wave on a taut string. What is the transverse speed for a point on the string at an instant

Describe the definition of nursing-metaparadigm theories : Describe the definition of nursing as put forward by the American Nurses Association. How does it address the metaparadigm theories of nursing?

User Account

All Pages