How much does the synthetic call option cost

Assignment Help Financial Management
Reference no: EM131618725

Ken is interested in buying a European call option written on Southeastern Airlines, Inc., a non-dividend–paying common stock, with a strike price of $85 and one year until expiration. Currently, Southeastern’s stock sells for $85 per share. In one year, Ken knows that Southeastern’s stock will be trading at either $102 per share or $71 per share. Ken is able to borrow and lend at the risk-free EAR of 2.5 percent.

a. What should the call option sell for today? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).)

Call option price $

b. What is the delta of the option? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).)

Delta of the option $

c. How much would Ken have to borrow to create a synthetic call? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).)

Synthetic call $

d. How much does the synthetic call option cost? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).)

Call option price $

Reference no: EM131618725

Questions Cloud

Calculate the cost of preferred equity : The current market price of the shares is $106.20. The tax rate is 30%. Calculate the cost of preferred equity.
Calculate the accumulated depreciation in year three : Calculate the accumulated depreciation in year 3. Calculate the book value of the asset at the end of year 1. Calculate the operating cash flow in year 2.
Effective dividend tax rate for buy-hold individual investor : What is the effective dividend tax rate for a buy and hold individual investor in 2006?
The impact on firm value from financial distress costs : summary about the impact on equity owners between leveraged and unleveraged capital structures, and the impact on firm value from Financial Distress Costs.
How much does the synthetic call option cost : Ken is interested in buying a European call option written on Southeastern Airlines, Inc. How much does the synthetic call option cost?
Calculate the initial cash flow for the firm : The firm also spent $500 on a market study to evaluate the demand for the product. Calculate the initial cash flow for the firm.
What is the risk-neutral value of the call option : If the risk-free rate is 4 percent, what is the risk-neutral value of the call option?
Calculate the current value of each taylor company bond : Will the Taylor Company bonds sell for a premium or a discount? Calculate the current value of each Taylor Company bond.
Calculate the before-tax cost of debt on the bond : Calculate the before-tax cost of debt on the bond.

Reviews

Write a Review

Financial Management Questions & Answers

  Changed tax laws to allow banks to utilize the tax loss

In September? 2008, the IRS changed tax laws to allow banks to utilize the tax loss carryforwards of banks they acquire to shield their future income from taxes

  Consider swap to pay currency floating

Consider a swap to pay currency A floating and receive currency B floating.

  Effective annual cost of costly trade credit

If Rubash Corporation bought on terms of 1/10, net 30, what would be its nominal annual cost of costly trade credit? Assume a 365-day year. If Rubash were unable to stretch its trade credit and hence had to pay by Day 30 if it did not take discounts,..

  Making annual savings donations to fund for several years

April wants to create a scholarship fund by making annual savings donations to the fund for several years before the fund starts making annual scholarship payments forever. She plans to save 12,700 dollars per year in the trust fund for 3 years. Her ..

  What is the standard deviation of the stock returns

what was the stock's return for the missing year? What is the standard deviation of the stock's returns?

  Thinking about bringing impressionist exhibit to saratoga

The Modern Arts Center is thinking about bringing an impressionist exhibit to Saratoga for 30 days. The Center expects 200 people per day to visit the exhibit, each paying the $10 entrance fee. Daily costs for security, extra power, and added custodi..

  Assume a municipal bond-what is the yield to call

Assume a municipal bond has 18 years until maturity and sells for $5.640 It has a coupon rate of 5.70 percent and it can be called in 10 years. What is the yield to call if the call price is 110 percent of par?

  About governmental entitlement programs

Given all of the press about governmental entitlement programs, and the possibility that Social Security will be unsustainable in 30 years, if you could make a change, what would it be (and why)?

  What was your dollar return and percent return

If you owned 380 shares of FedEx, what was your dollar return and percent return?

  Contrast job order costing and process costing

Compare and contrast job order costing and process costing. What types are products are typically accounting for using job order costing and process costing?

  Uses the accrual method of accounting

Baldwin uses the accrual method of accounting and offers 30 day credit terms.

  Two significant challenges in global product development

What are two significant challenges in global product development? Also, describe the guiding principles regarding global ethical practices.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd