Reference no: EM131221118
1. Consider R one-period model for the price of a stock s: suppose Its time-0 value S0 is known, and it is known that at t i11w 7’, its value is either Su or Sd. Assume further that V is a derivative on S expiring at time T; suppose it’s time-0 value is l4. and that at time T, it has value U if the stock price is Su or D if the stock price is Sd. Use the arbitrage theorem to prove that the risk-neutral probability is given by
![1573_Untitled.png](https://secure.expertsmind.com/CMSImages/1573_Untitled.png)
And
![1729_Untitled.png](https://secure.expertsmind.com/CMSImages/1729_Untitled.png)
![944_Untitled.png](https://secure.expertsmind.com/CMSImages/944_Untitled.png)
2. Carey Company is borrowing $150,000 for one year at 8.0 percent from Second Intrastate Bank. The bank requires a 15 percent compensating balance. The principal refers to funds the firm can effectively utilize (Amount borrowed − Compensating balance).
a. What is the effective rate of interest? (Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.)
b. What would the effective rate be if Carey were required to make 12 equal monthly payments to retire the loan? (Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.)
3. Due to a recession, expected inflation this year is only 3.25%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 3.25%. Assume that expectations theory holds and the real risk-free rate is r* = 2.75%. If the yield on 3-year Treasury bonds equals the 1-year yield plus 2.75%, what inflation rate is expected after Year 1?
4. The skipper wants to buy a beach house. The house costs $250,000. What is the monthly payment on a 30 year loan with a 6% nominal interest rate?
5. The market portfolio has a standard deviation of 20 percent, and the covariance between the returns on the market and those on a stock Z is 0.08.
1. What is the beta of stock Z.?
2. What is the standard deviation of a fully diversified portfolio of such stocks?
3. What is the average beta of all stocks?
4. If the market portfolio gave an extra return of 5%, how much extra return can you expect from stock Z?
Sum of dices when three dices are rolled together
: Sum of dices when three dices are rolled together. What is the probability of getting a sum of 4 if three dices are rolled together? What is the probability of getting a sum of 5 and 7 if you throw three dices together? What is the probability of get..
|
Squaring numbers ending with five
: Calculating cube of numbers, Squaring numbers ending with five
|
Calculating cube of numbers
: Calculating cube of numbers. To do the cube of a two digit number, What is the cube of 13. What is the cube of 14? Find the cube of 16.
|
Use the arbitrage theorem-risk-neutral probability
: Consider a one-period model for the price of a stock s: suppose Its time-0 value S0 is known, and it is known that at t i11w 7’, its value is either Su or Sd. Assume further that V is a derivative on S expiring at time T; suppose it’s time-0 value is..
|
What is the average beta of all stocks
: The market portfolio has a standard deviation of 20 percent, and the covariance between the returns on the market and those on a stock Z is 0.08. What is the standard deviation of a fully diversified portfolio of such stocks? What is the average beta..
|
Gamma function
: GAMMA FUNCTION
|
Determine the proper amount of net income
: During the course of your examination of the financial statements of the Hales Corporation for the year ended December 31, 2016, you discover the following: Hales borrowed $22,000 from a local bank on October 1, 2016. Principal and interest at 12% wi..
|
Ob-order costing-the unadjusted cost of goods sold
: Vanproosdy Inc., which uses job-order costing, has provided the following data for February: Direct materials. $78,000 Direct labor cost $94,000 Manufacturing overhead cost incurred $54,000 Manufacturing overhead cost applied. $50,000 Inventories: Th..
|
Application of manufacturing overhead to production
: Cambridge Manufacturing Company applies manufacturing overhead on the basis of machine hours. At the beginning of the year, the company estimated its total overhead cost to be $286,000 and machine hours to be 14,300. Record the actual manufacturing o..
|