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Question 1: Binomial model Buffelhead's stock price is $220 and could halve or double in each six- month period (equivalent to a standard deviation of 98%). A one-year call option on Buffel- head has an exercise price of $165. The interest rate is 21% a year. a. What is the value of the Buffelhead call? b. Now calculate the option delta for the second six months if(i)the stockprice rises to $440 and (ii) the stock price falls to $110. c. How does the call option delta vary with the level of the stock price? Explain intui- tively why. d. Suppose that in month 6 the Buffelhead stock price is $110. How at that point could you replicate an investment in the stock by a combination of call options and risk-free lend- ing? Show that your strategy does indeed produce the same returns as those from an investment in the stock.
Question 2: Recalculate the value of the Buffelhead call option, assuming that the option is American and that at the end of the first six months the company pays a dividend of $25. (Thus the price at the end of the year is either double or half the ex-dividend price in month 6.) How would your answer change if the option were European?
Which of the following statements is correct? A) all else equal, senior debt generally has a lower yield to maturity than subordinated b) an indenture is a bond that is less risky than a mortgage bond
if a company plans to issue preferred stock with a perpetual annual dividend of 2 per share and a par value of 25. if
Is it possible for a company to show positive cash flows but be in grave trouble? Q: How is it possible for a company to show positive net income.
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The going rate on such annuities is 7.25%. How much would it cost her to buy such an annuity today?
You own a put option on yahoo stock. The strike price of $10. The option will expire in exactly 6 months times.
What is say's law and how is Keyne's analysis supporting government spending government spending is based on a different understanding of the the S=I identity?
The Fitness Studio, Inc., with the help of its investment bank, recently issued $43.155 million of new debt. The offer price (and face value) on the debt was $1,000 per bond and the underwriter's spread was 5 percent of the gross proceeds.
General Meters is considering two mergers. The first is with Firm A in its own volatile industry, the auto speedometer industry.
Cost-Cutting Proposals. CSM Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $375,000.
On August 19, 2004 Google issued its IPO of 19.7 million shares to the initial investors at $84.63 per share. The closing price of the stock that same day was $100.08. What was the dollar value of the underpricing associated with the Google IPO?
Thomans preferred stock dividend is $15,000. Its weighted-average common shares outstanding were 250,000. What is Thoman cash flow per share?
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