What is the hedge ratio of the put

Assignment Help Financial Management
Reference no: EM131556508

We will derive a two-state put option value in this problem. Data: S0 = 230; X = 240; 1 + r = 1.1. The two possibilities for ST are 260 and 180. a. The range of S is 80 while that of P is 60 across the two states. What is the hedge ratio of the put? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) Hedge ratio b-1. Form a portfolio of 3 shares of stock and 4 puts. What is the (nonrandom) payoff to this portfolio? (Round your answer to 2 decimal places.) Nonrandom payoff $ b-2. What is the present value of the portfolio? (Round your answer to 2 decimal places.) Present value $ c. Given that the stock currently is selling at 230, calculate the put value. (Round your answer to 2 decimal places.) Put value

Reference no: EM131556508

Questions Cloud

Countries of the world been struggling : Why have so many countries of the world been struggling (Brazil, Russia, Venezuela, Japan, etc.)?
How much did the shirt factory save by hedging cotton : Cotton futures are based on 50,000 pounds and quoted in cents per pound. How much did the Shirt Factory save by hedging cotton?
Is this is true in the short run : If policymakers do nothing and allow the economy to adjust to the natural rate of output on its own, does expecting higher prices cause higher prices
What cultural considerations does a medical assistant need : What cultural considerations does a medical assistant need to be aware of when addressing issues related to the female reproductive system?
What is the hedge ratio of the put : The range of S is 80 while that of P is 60 across the two states. What is the hedge ratio of the put? What is the present value of the portfolio?
Define ethical communication : Discuss how mobile technology is changing the practice of business communication. Define ethical communication
Define the current ratio total asset turnover and debt ratio : Define the Current ratio, Total asset turnover, Debt ratio and Profit margins. Define and provide an example of what the Short-term solvency mean?
Call option value using the two-state stock price model : calculate your estimate of the the call option's value using the two-state stock price model.
Statements best describes a firm''s financial risk : Which of the following statements best describes a firm's financial risk?

Reviews

Write a Review

Financial Management Questions & Answers

  What are expected return and standard deviation of return

Kate recently invested in real estate with the intention of selling the property one year from today. She has modeled the returns on that investment based on three economic scenarios. She believes that if the economy stays healthy, then her investmen..

  Develop a plan for managing your debt

Develop a plan for managing your debt. How many sources of debt do you current have, and what are the balances owed on each?

  The stock price using the p-e ratio valuation method

Using the P/E ratio approach to valuation, calculate the value of a share of stock under the following conditions: the investors required rate of return 13%. the stock price using the P/E ratio valuation method is $. The stock price using the dividen..

  The balanced scorecard and organizational effectiveness

Select an organization to study for this exercise. It should be an organization for which one of you has worked, or it could be part of the university.

  What is the project payback period if the initial cost

What is the project payback period if the initial cost is $2388?

  Sinking fund each year to replace machine costing

How much money would have to be placed in a sinking fund each year to replace machine costing $10,000 today at the end of 14 years if the fund yields 11% annual interest rate compounded yearly and if the first cost of the machine is assumed to increa..

  Spot interest rates for maturities

Consider the following spot interest rates for maturities of one, two, three, and four years. r1 = 4.5% r2 = 4.9% r3 = 5.6% r4 = 6.4% What are the following forward rates, where f1, k refers to a forward rate for the period beginning in one year and ..

  Un-systematic Risk and their relationship with CAPM

Explain the ideas of Systematic, Un-systematic Risk and their relationship with CAPM. What kind of portfolios will have their expected rates of returns (versus their “beta’s”) located on the Security Market Line?

  Considering new three-year expansion project

Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.61 million.

  What is the firm after-tax cost of debt

5 years ago, Barton Industries issued 25-year noncallable, semiannual bonds with a $1,200 face value and a 8% coupon, semiannual payment ($48 payment every 6 months). The bonds currently sell for $845.87. If the firm's marginal tax rate is 40%, what ..

  Employ the different capital budgeting techniques

Give an example of how you would employ the different capital budgeting techniques to a real life situation or a situation you can envision.

  Monetary policy during war

Monetary policy during war: Consider a discussion during FOMC meetings in which there is a weak economy and a war, with potential major damage to oil wells. Explain why this possible effect would have received much attention at the FOMC meetings.

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