For what price of the option is the black-scholes implied

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Assignment Questions -

Q1. A coupon bond issued by a AA-rated company. Fitch Ratings has estimated that the yield on debt issued by AA companies in the current interest rate environment to be 6.6%. The bond has a face value of $100, 5 years to maturity and makes semi-annual coupon payments at a coupon rate of 5.4% p.a.

Q2. An ordinary share. The share is expected to pay an annual dividend of $14 next year, $12 in year 2, $10 in year 3, and then $9 every year thereafter in perpetuity. Your required rate of return on this share is 10%.

Q3. Consider a European call option on a non-dividend paying stock with exercise price 100 USD and expiration time in one year. Interest rate is 1 percent and the price of the stock today is 75 USD. For what price of the option is the Black-Scholes implied volatility equal to 0.353.

Q4. Consider a European call option on a non-dividend paying stock with exercise price 100 USD and expiration in one month. Interest rate is 1 percent and volatility of the stock is 0.4. We sold 100 of these options and use Black-Scholes delta hedging to hedge our portfolio. Give an example of the stock price, for which we have more than 50 stocks in our portfolio.

Reference no: EM132553917

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