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You own 100 shares of Amazon stock (AMZN) and are concerned that the price will go down. You do not want to sell because you have unrecognized capital gains and are in a high tax bracket.
Using the Black-Scholes model with ? = .21, r=.01, t=December 2014 option, K= today's price, and ignoring dividends, answer the following:
(a) On an ongoing basis, what portfolio should you construct to offset any loss on the stock with profit from an option? (Hint: consider the delta of the stock which measures how many shares of stock equals the movements in one option. Using Black-Scholes, delta = N(d1) - 1 for a put option).(b) What is the approximate cost per month of maintaining this hedge indefinitely? (Approximate this using 8 month option price divided by 8)(c) If the stock price moves by $1, what is the change in value of your portfolio (stock plus option)?(d) If the stock price moves by $100, what is the change in value of your portfolio? Why is it different than part (c)?
Describe why purchasing stocks with lowest price or earnings per share ratios may or may not be a good investment strategy.
O'Brien Ltd.'s outstanding bonds have a $1,000 par value, and they mature in 25 years. Their nominal yield to maturity is 9.25%, they pay interest semiannually, and they sell at a price of $850. What is the bond's nominal (annual) coupon interes..
William Miklo is opening a new business and the bank will not give him a loan without a 20% compensating balance account.
A project has following projected outcomes in dollars: $250, $350, and $500. The probabilities of their outcomes are 25 percent, 50 percent, nad 25 percent respectively.
You own a portfolio that is invested as follows: $11,257 of Stock A, $8,565 of Stock B, $14,898 of Stock C, and $4,044 of Stock D. What is the portfolio weight of Stock C?
Computation of profit margin and total asset turnover and return on total assets for two consecutive years and Comment on such results
Hexagon declares a four for five reverse split. How many shares are outstanding now? What is the new par value per share?
Milton Corporations expects free cash flow of $5 million each year. Milton'scorporate tax rate is 35 percent, and its unlevered cost of capital is 15%. The firm also has outstanding debt of $19.05 million,
Emily, age 58, has been a participant in the Icon, Inc. ESOP for 15 years. She plans to retire at age 65. How much must Icon allow Emily to diversify this year?
A stock with a beta of 1.5 has a required return of 14%. If the expected (required) return on the market is 11%, then what is the risk free rate?
Explain how many times per year does Zocco turn over its inventory and consider that cost of goods sold is 75% of sales.
American Superconductor switch; Westboro corporation plans to raise money through a stock offering Andi Esposito. Telegram & Gazette. Worcester, Mass.: Aug 26, 2003. pg. E.1
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