What is the price of the exotic derivative

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1. Santa Klaus Toys just paid a dividend of $3.10 per share. The required return is 9.2 percent and the perpetual dividend growth rate is 4.0 percent. What price should this stock sell for five years from today?

2. Ghost Riders Co. has an EPS of $1.55 that is expected to grow at 7.5 percent per year. If the PE ratio is 18.15 times, what is the projected stock price in 6 years?

3. An investor willing to hedge down-side risk, has to different alternatives. Invest in the option contract described above or invest in an exotic derivative that gives its holder a payoff of $-15 in the up state and a payoff of $30 in the down state. What is the price of the exotic derivative? (pick the method that you want).

Reference no: EM131997800

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