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The current price of a non-dividend-paying biotech stock is $140 with a volatility of 24%. The risk-free rate is 4%. A trader is using a two-step binomial tree to value a 6-month European call option. The strike price is $150. A. What are the up- and down-movement u and d? B. What are the probabilities of an up- and down-movement in a risk-neutral world? C. What is the value of the European call option? D. Suppose that a trader sells 10,000 European call options. What position should the trader take to hedge the position for the first three-month period? (Hint: You need to find the delta for the first three-month period. Do not use the Black-Scholes delta.)
A stock is trading at $80 per share. The stock is expected to have a year-end dividend of $3 per share (D1= $3), and it is expected to grow at some constant rate g throughout time. What is the required rate of return on a preferred stock with a $50 p..
The financial statements of Victory's Natural Foods.Compute the following ratios for the current year: a. Current ratio b. Cash ratio etc.
If the central bank holds the real interest rate constant, what happens to output and the real exchange rate? - should it raise or lower the interest rate?
A stock currently costs $ 85 and pays a $ 3.50 dividend. If you expect to sell the stock after 10 years for $ 125 what is your anticipated return on the investment. (The answer is the average return for the 10 years assuming the dividend and capital ..
How many shares will you own, what will the price per share be, and what will your total value be in the stock of BugsyBuns, Inc.?
Rosco Taxi Service uses the units-of-activity method in computing depreciation on its taxicabs. Each cab is expected to be driven 143,000 miles. Taxi no. 10 cost $40,000 and is expected to have a salvage value of $470. Taxi no. 10 is driven 33,100 mi..
Which of the following risk factors do you think analyst, consultants, and financial advisers are most concerned with today
If the firm uses cumulative voting to elect its board, what is the minimum number of votes needed to ensure election of one member to the board?
Use this data table of Campbell Industries liabilities and owners' equity to complete parts a and b. What percentage of the firm's assets does the firm finance using debt (liabilities)? If Campbell were to purchase a new warehouse for $1.3 million a..
Which of the following statements about the qualitative approach to project risk assessment is most correct?
You'll need a thirtyfive-year, fixed-rate mortgage to buy a new home for $260,000.00 Your mortgage bank will lend you the money at an APR of 5.55 %for this 420-month loan. However, you can afford monthly payments of only $1,000, so you offer to pay o..
Calculate the price of a zero coupon with 10 years maturity, par value 100$ assuming that the 10-year zero coupon rate is 5%, the default and recover probabilities are 50%, and recovery rate of 50%. Is the price lower or higher of the same bond in th..
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