What is the continuously compounded risk-free

Assignment Help Finance Basics
Reference no: EM132804601

The current share price of Winetowat Inc is $50. Future movements in Winetowat Inc's share price are well-described by a continuous process with no jumps and constant volatility. The volatility of the continuously compounded return on Winetowater's stock is 30% per annum. The risk-free rate with annual compounding is 4% per annum.

(a) What is the continuously compounded risk-free rate per annum?

(b) What is the cost of acquiring a portfolio that could be dynamically managed to replicate the payoff from a three-month European-style PUT option on the stock of Winetowat with an exercise price of $48? Note, these are the payoffs to a put option, not a call.

Reference no: EM132804601

Questions Cloud

Calculate the external financing needed : Calculate the external financing needed given the following information: current sales = $275,000; current sales capacity = 75%; current fixed assets = $40,000;
Why hd ltd cannot use firm wacc to evaluate standalone : Why HD Ltd. cannot use firm's WACC to evaluate its standalone projects, and what are possible remedies to adjust it to suit the standalone projects?
Real inflation-adjusted rate of return of nancy : Nancy's son plans to start college when he graduates from High School. Assume that after-tax annual rate of return that Nancy is able to earn from her investmen
How the strategy applies to one of the learning theories : Write a 500-750 word summary addressing the following: Explanation of how the strategy applies to one of the learning theories from the Topic 1 assignment.
What is the continuously compounded risk-free : The current share price of Winetowat Inc is $50. Future movements in Winetowat Inc's share price are well-described by a continuous process with no jumps and co
Describe the principles of brain-based learning : Knowing the value of what one learns and how it can be meaningfully applied to one's practice or skill-set is always an important factor in the learning.
What is the npv to the nearest dollar : What is the NPV to the nearest dollar? Assume All other cash flows including, tax payments and credits are made at the end of the year.
What is the annual rate of return for this stock : Omega Healthcare Investors pays a dividend on its Series B preferred stock of $0.539 per quarter. What is the annual rate of return for this stock
What is the initial value of company debt : Assume that Company is all equity financed. What is the value of equity? Now suppose Company has zero-coupon debt with a $100 million face value due next year.

Reviews

Write a Review

Finance Basics Questions & Answers

  What is the primary purpose of a stock split

What is the primary purpose of a stock split? Explain how shareholders can avoid earnings per share di- lution from common stock issuances?

  What are the alternative explanations

What are the arguments for and against smart beta strategies and what are the alternative explanations for why they should or shouldn't work?

  Find the price at which must sell your share

Suppose you had purchased a share of Amacon stock on Dec 31, 2019. Find the price at which you must sell your share at 2024 year-end in order

  What is the annual rate of return of purchase

Assume that part of the US is worth an average of $5,000per acre in 2015. What is the annual rate of return of this purchase for the U.S.?

  What is the probability that the indicator would be correct

What is the probability that the indicator would be correct 35 or more times in 44 years? What does this tell you about the usefulness of this indicator?

  What is the beta of the portfolio

The expected market return is 0.06 and the risk free rate is 0.02. Portfolio P has 25% invested in stock A and 75% invested in stock B

  What is the amount of the monthly payments

A commercial bank will loan you $32,987 for 8 years to buy a car. The loan must be repaid in equal monthly payments at the end of the month. The annual interest rate on the loan is 9.80 percent of the unpaid balance. What is the amount of the mont..

  What is the couple monthly cash flow

Sanderson has an average tax rate of 20% and Norma's is 25%. What is the couple's monthly cash flow?

  Methods of evaluating marketing programs

Question 1: Three commonly used methods of evaluating marketing programs are marketing metrics, marketing dashboards, and marginal analysis.

  What was the average annual growth rate

Yesterday it paid a dividend of 4 dollars. What was the average annual growth rate of dividend for this firm?

  Determining the yield to maturity

Golden Co.'s bonds mature in 15 years and pay 8 percent interest annually. If you purchase the bonds for $1,175, what is their yield to maturity?

  Write a product recall letter

Prepare a letter that will go out to the 1,750 Sew-Now purchasers. Customers can call your toll-free number if they have questions.

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