What is the value of the portfolio in one year

Assignment Help Financial Management

Reference no: EM131972268

Madeline Manufacturing Inc.'s current stock price is $35 per share. Call options for this stock exist that permit the holder to purchase one share at an exercise price of $25.

These options will expire at the end of 1 year, at which time Madeline's stock will be selling at one of two prices $20 or $45. The risk-free rate is 5%. Using the binomial option pricing model, create a riskless hedged investment and answer the following questions:

After the payoffs have been equalized and the riskless hedged investment is created, what is the value of the portfolio in one year? Round your answer to two decimals if needed.

Reference no: EM131972268

Questions Cloud

How many dollars worth of sales are generated from every : How many dollars worth of sales are generated from every $1 in total assets?

How much money needs to be set aside each year to replace : A machine costs $20,000 today and has an estimated scrap cash value of $2000 after 8 years. Inflation is 8% per year.

Calculate the propertys annual debt coverage ratio : I've applied for a $4,000,000 loan to make the purchase, the terms of which are a 9.25 percent fixed rate amortized monthly over 25 years with a 7-year term.

What is the cash coverage ratio : Sales of $4,650, costs of $2,450, interest paid of $160, and depreciation of $455. The tax rate is 35 percent. What is the cash coverage ratio?

What is the value of the portfolio in one year : Madeline Manufacturing Inc.'s current stock price is $35 per share. Call options for this stock exist that permit the holder to purchase one share.

Test for the significance of all possible effects : Test for the significance of all possible effects - The data in Table 7 shows one observation per each of the 8 combinations

What is the bond coupon rate : 15-year, semiannual coupon bond sells for $942.01. The bond has a par value of $1,000 and a yield to maturity of 7.17 percent. What is the bond's coupon rate?

Determine the capital recovery based upon an interest rate : If O&M costs equal $2,000 per year and the machine can produce 3,000 units per year, what is the unit cost?

Explain the early theories of motivation : Explain the early theories of motivation and the early leadership theories. Why is it important for managers to understand these theories

User Account

All Pages