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An Investor is said to take a position in a "collar' if she buys the asset, buys an out-of-the-money put option on the asset, and sell an out-of-the-money call option on the asset. The two options should have the same time to expiration.
Suppose you wish to purchase a collar on Company A, a non-dividend-paying stock, with six months until expiration.
You would like the put to have a strike price of $55 and the call to have a strike price of $95.
The current price of the Company A stock is $70 per square.
You can borrow and lend at the risk-free rate of 7% per annum, and the annual standard deviation of the stock's return is 50%.
What is the price of the put options? (2-decimal points)
What is the price of the Call option?
What is the total cost of the collar?
which pays simple interest? How long at Second Bank, which compounds interest monthly?
Money market mutual funds take in your dollars (like deposits) and invest them in shortterm “safe” financial instruments to earn you interest. Now assume there is a rule stating that MMMF’s could cash people out at $1 if (for instance) the value of t..
calculate your estimate of the the call option's value using the two-state stock price model.
it is better to use actual funds or government bonds from each country.
Valuation with price/earnings multiples For each of the firms shown in the following table, use the data given to estimate its common stock value employing price/ earnings (P/E) multiples.
Binomial pricing or Monte carlo method? Binomial method seems a bit tedious.
X Corp. is considering a new project which will have costs, revenues, etc. as shown by the table below. what is the net present value (NPV) of this project?
The annual risk-free rate is 5 percent. Calculate the price of a put option that expires in six months and has a strike price of $35.
An investment offers a 9.7 percent total return over the coming year. Janice believes the inflation rate will be percent over the next year.
What are the ethical implications of undertaking transactions expressly to temporarily hide how much money a firm has borrowed?
Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt−equity ratio of .85. It’s considering building a new $52 million manufacturing facility. This new plant is expected to generate afte..
A stock has returns of 3 percent, 19 percent, -26 percent, and 16 percent for the past 4 years. what is the 95 percent probability range for any one given year?
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