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1. Suppose you want to price a call option on WWW Inc. The current stock price of WWW is $60. The risk-free rate is 3%. What is the appropriate price of the 1 year call option of WWW Inc. with a strike price of $58 using risk-neutral approach? You project the stock price of WWW will either be $54 or $64 in a year.
2. Use put-call parity to verity the call option price from question 6 and the put option price from question 7 are valid since they are both based on the same underlying stock with the same maturity.
3. You try to price the put option on XYZ corp. The current stock price of XYZ is $100/share. The risk-free rate is 3%. What is the appropriate price of the 1 year put option of XYZ corp with a strike price of $110 using risk-free portfolio approach? You project the stock price of XYZ will either be $100 or $140 in a year. Assume we live in a risk-neutral world where the returns on all assets are equal to the risk-free rate.
Able: Baker, and Charlie are the only three stocks in an index. what is the new divisor for the price-weighted index?
You want to create a portfolio equally as risky as the market, and you have $900,000 to invest. Given this information, fill in the rest of the following table: Asset Investment Beta Stock A $ 180,000 .80 Stock B $ 270,000 1.20 Stock C ? 1.50 Risk-fr..
Southern Alliance Company needs to raise $70 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. What is the true initial cost figure the company shoul..
As a general contractor, Conway Construction Corporation (CCC) entered into a written contract with Setcher Roofing Company (SRC) for all roofing. Is Setcher Roofing Company legally entitled to the money? If Setcher Roofing Company was not an old ass..
What is the fundamental function of the insurance company--- in other words, what is it the insurance company does that makes the insurance mechanism work? A. It pools those insured’s having similar risks, and predicts the losses that those in the po..
What will be the monthly payment? How much of the first payment will be interest, and how much will be principal?
If I made every required payment for the first 48 months of the loan, what is my current payoff on my loan.
A similar property that is developed now is valued at $190,000. What should be the current value of the undeveloped land?
Bauer Inc. has $2,050 of assets and $2,995 of sales. Its operating costs are $2,701, including $31 of lease payments, $450 of depreciation, and $500 of amortization charges. Its total current liabilities are $315, consisting of $265 of accruals and $..
Calculate the effective rate of interest for the following types of loans.
Based on Exhibit 7-7, what would be the monthly mortgage payments for each of the following situations?
Define the following terms: period dividend, annual dividend, value and dividend adjustment for split.
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