Lower and upper bounds on the price

Assignment Help Finance Basics
Reference no: EM133110039

An American option to buy PBA Ltd shares for $8.40 in exactly three months is priced at 46c. The next dividend of 50c will be paid in six months, and PBA's shares are currently trading for $8.55. Interest rates are 10% p.a. compounded quarterly.

i) What are the lower and upper bounds on the price of an American option to sell PBA's shares for $8.40 in three months?

ii) If the price of the put option was 34c, what initial position would produce an arbitrage profit?

Reference no: EM133110039

Questions Cloud

Biggest impact on laws : What do you believe has biggest impact on laws and regulations in the health care industry? Why are laws and regulations important to the health care industry
What is the value of the potential loss : A client of a financial institution that is a counterparty to a four-year plain-vanilla interest rate swap has declared bankruptcy. Exactly 16 months remain unt
What amounts were reported on the boxes : Jack made $132,900 in 2019 and paid $5,235 in FIT. What amounts were reported on the W-2 in boxes 3, 4, 5 and 6, respectively
What is theoretical framework : Discuss your theoretical framework you plan to use for your paper. What is a theoretical framework and how does it apply to your project?
Lower and upper bounds on the price : An American option to buy PBA Ltd shares for $8.40 in exactly three months is priced at 46c. The next dividend of 50c will be paid in six months, and PBA's shar
Value of the potential loss to the financial institution : A client of a financial institution that is a counterparty to a four-year plain-vanilla interest rate swap has declared bankruptcy. Exactly 16 months remain unt
Calculate the value of a three-month european call : The ASX200 Share Price Index (SPI) stands at 7,300 and has a volatility (standard deviation) of 20% per annum. The risk-free rate of interest is 3% p.a. and the
Health care laws start as health care policy : Like all laws, health care laws start as health care policy and make their way through the legislative process to become law.
What is the value today of receiving per year forever : What is the value today of receiving $1,690.00 per year forever? Assume the first payment is made 6.00 years from today and the discount rate is 10.00%

Reviews

Write a Review

Finance Basics Questions & Answers

  Interest payments and bond prices

Interest payments and bond prices are stated as percentages of par

  Cost-benefit analysis of a program

How would you set up a cost-benefit analysis of a program to reduce air pollution in a city? Indicate the items you would include as costs and benefits, and discuss the problems encountered in measuring these benefits and costs.

  Annum compounded quarterly on deposits

One of your goals is to start a business. You have estimated that this investment would be $ 80,000 and it would be 7 years from now; How much do you need to de

  What is the price of bond

a. What is the expected cash flow of a 6% coupon bond that pays interest annually, matures in seven years, and has a principal of $1,000? b. Assuming a discount rate of 8%, what is the price of this bond?

  What is special about a probit regression model

What is special about a probit regression model? Please, Give some economic examples, where this kind of model can be used.

  Role of the course instructor in the learning process

-What does it mean to take ownership of your own learning? In your response, describe the difference between active and passive learning.

  How would these three possibilities affect your decision

Carcinogens-R-Us and Lung Decay, two cigarette producers of comparable size, are struggling for market share in a declining market.

  What is the yield to maturity on abc bonds

The coupon rate on the bonds is 4%, the par value is $1000, and the bond matures in 10 years. What is the yield to maturity on ABC's bonds?

  What coupon rate is being paid on debt for a firm

What coupon rate is being paid on debt for a firm with an after-tax cost of debt of 7.5% and a tax rate of 40%?

  What is the lowest possible per shovel price

Merton Shovel Corporation has decided to bid for a contract to supply shovels to the Honduran Army. The Honduran Army intends to buy 900 shovels per year.

  What is your holding period return

You bought Chemtron stock for $45 a year ago. It is selling for $54 today. What is your holding period return?

  Determine the common stock''s dividend yield

Technology's common stock is selling at $30 per share today. Southwest just paid a $2 dividend. Its dividend is expected to grow by 5% in the coming year. The required rate of return on Southwest is 15%. Determine the common stock's dividend yield an..

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