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We will derive a two-state put option value in this problem. Data: S0 = 290; X = 300; 1 + r = 1.1. The two possibilities for ST are 330 and 180. a. The range of S is 150 while that of P is 120 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.)
A. Hedge ratio__________
b-1. Form a portfolio of 4 shares of stock and 5 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 290, calculate the put value. (Round your answer to 2 decimal places.)
Put value $_____________________
We are evaluating a project that costs $1,610,000, has a seven-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. What is the sensitivity of NPV to changes in the sales figure? What is..
The interest rate on a new issue of callable bonds is likely to exceed that on a similar new issue of noncallable bonds. The interest rate on a new issue of noncallable bonds is likely to exceed that on a similar new issue of callable bonds. Noncalla..
Carter’s preferred stock pays a dividend of $1.00 per quarter. If the price of the stock is $45.00, what is its nominal (not effective) annual rate of return?
Kyle’s Shoe Stores Inc. is considering opening an additional suburban outlet. An aftertax expected cash flow of $130 per week is anticipated from two stores that are being evaluated. Both stores have positive net present values. Site A Site B Probabi..
Suppose that you have $82,500 to invest and would like to purchase 1500 shares of ABC Corp.'s shares which are currently trading for $100.00 per share. Law requires that all brokers have an Initial Margin of 50% but your broker demands a 55% Initial ..
Forward contracts are standardized and trade on an exchange. Profits and Losses on Futures contracts are marked to market on a daily basis. Delivery of the assets almost never occurs in the forward market.
How might credit card companies keep their cardholders in debt for a long time? What payment do the credit card companies expect your friend to make so that he never pays down the debt?
The amount borrowed on a loan equals:
Caan Corporation will pay a $2.62 per share dividend next year. The company pledges to increase its dividend by 4.5 percent per year indefinitely. If you require a return of 10 percent on your investment, how much will you pay for the company’s stock..
Another utilization of cash flow analysis is setting the bid price on a project. To calculate the bid price, we set the project NPV equal to zero and find the required price. Thus, the bid price represents a financial break-even level for the project..
Last week you discussed the questions you would ask a CFO of a company before beginning an audit engagement. Think about this same conversation, but this week I want you to identify three specific questions you would as him/her which would help you t..
Suppose that observations on a stock price (in $) at the end of each of 15 consecutive days are as follows: Estimate the daily volatility
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