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A stock price is currently $48. Over each of the next two three-month periods it is expected to go up by 6% or down by 5%. The risk-free interest rate is 3% per annum with semi-annual compounding.
Part I.
Use the two-steps binomial tree model to price a 6-months European put option with an exercise price of $51.
Part II.
Assume you have sold the above put option to your client and charged him a fair price. Discuss how you can hedge your risk to avoid a big loss if the stock price turned out to be $1 in 6-months.
on january 1 2007 the osborne company reported the following alphabetical list of stockholders equity itemsadditional
The dividend is expected to grow 11% a year for the next 3 years and then at 4% a year thereafter. What is the expected dividend per share for each of the next 5 years? Round your answers to two decimal places
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Martha's Pancake House, Inc. just paid its annual dividend of $0.80 a share. The stock has a market price of $13.00 and a beta of 1.04. The return on U.S. Treasury bills is 2.5 percent and the market risk premium is 7.3 percent. What is Martha's c..
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A discussion of at least 3 important types of ABS, including MBS. Two specific, real-world examples of asset-backed securities with appropriate maturities and how they compare to a Treasury security of the same maturity in terms of the spread over ..
The cost of holding the building will be 8% per year. The cost of acquiring the property was $3.2 million. What is the project's NPV?
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A bond has 5 years to maturity and has a YTM of 8%. Its par value is $1,000. Its semiannual coupons are $50. What is the bonds current market price? (Show workings)
Divine Apparel has 3,000 shares of common stock outstanding. On October 1, the company declares a $0.50 per share dividend to stockholders of record on October.
a. Develop a joint probability table for these data and use the table to answer the remaining questions.
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