What is the risk-neutral probability

Assignment Help Finance Basics
Reference no: EM131958115

Question: A company is currently awaiting the outcome of a major lawsuit. This is expected to be known within one month. The stock price is currently $20. If the outcome is positive, the stock price is expected to be $25 24 at the end of one month. If the outcome is negative, it is expected to be $16 18 at this time. The one-month risk-free interest rate is 8% per annum.

a. What is the risk-neutral probability of a positive outcome?

b. What are the values of one-month call options with strike prices of $18, $20, $22, and $24?

Reference no: EM131958115

Questions Cloud

Determine what is the projects irr : IRR Project K costs $48,089.11, its expected cash inflows are $11,000 per year for 8 years, and its WACC is 12%.
What is the value of the company share : A company expects to pay dividend of $0.72 next year. Dividends have been growing at a compound annual rate of 6% and are expected to continue growing.
Writre an annotated bibliography provides a background : Writre an annotated bibliography provides a background for understanding a portion of the existing literature on a particular topic.
Explain the performance measurement system : You must also be able to explain the performance measurement system utilized within the organization. Each organisation will have its own performance management
What is the risk-neutral probability : A company is currently awaiting the outcome of a major lawsuit. This is expected to be known within one month. The stock price is currently $20.
What is the purpose of ehr implementation : What is the purpose of EHR implementation? And what certifications are mandatory for providers enrolled?
What is the projects irr : Project L costs $64,983.94, its expected cash inflows are $14,000 per year for 10 years, and its WACC is 10%.
Purpose of the north american free trade agreement : What is the purpose of the North American Free Trade Agreement? How has it impacted trade between the U.S., Canada and Mexico?
What is the ultimate potential for electric vehicles : Econ 348 Final Project - How does the fuel efficiency of the existing fleet change as EVs are added? What is the ultimate potential for electric vehicles

Reviews

Write a Review

Finance Basics Questions & Answers

  Least three potential issues in utilizing ratio analysis

Discuss at least three potential issues in utilizing ratio analysis that you would share with your colleague. In addition, calculate a liquidity, profitability, and efficiency ratio from your Week Six Company to demonstrate your observations.

  International differences in accounting

Explain at least 2 causes or reasons for international differences in accounting. Compare the accounting systems in 2 countries with differing legal systems. Explain why each country's system is the way it is.

  Why is notional principal often exchanged in a currency swap

Why is notional principal often exchanged in a currency swap but not in an interest rate or equity swap? Why would the parties to a currency swap choose not to exchange the notional principal ?

  What are some of the basic requirements of a successful

What are some of the basic requirements of a successful turnaround plan?

  Te 2010 income statement showed an interest expense of

the 2009 balance sheet of annas tennis shop showed long term debt of 1.34 million and the 2010 balance sheet showed

  What is the firm ebit

Advantage First Corporation has sales of $4,504,470;Income tax $448,436,the selling,general and administrative expenses of $280,367,depreciation of $355,994.

  Show the impact on the market for u.s. treasury bonds

Use one graph to show the impact of this change in tax rates on the market for municipal bonds and another graph to show the impact on the market for U.S. Treasury bonds.

  At what price must the investor cover the short sale

Assume that an investor sells short 200 shares of stock at $75 per share. At what price must the investor cover the short sale in order to realize a gross profit of $5,000? $1,000?

  Percentage of sample means

What percentage of sample means will be less than 5.15 inches?

  Fixed exchange rate affects companies such as blades

Determine the fundamental manner in which a fixed exchange rate affects companies such as Blades.

  At what price will you receive a margin call

You buy 600 shares of stock at a price of $86 and an initial margin of 75 percent. If the maintenance margin is 40 percent, at what price will you receive a margin call?

  Invest in equal annual amounts and alternatively

calculate the amount of money she would have to invest in equal annual amounts and alternatively, in equal monthly amounts

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