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1. The current market value of the assets of Bigelow, Inc. is $91 million, with a standard deviation of 19 percent per year. The firm has zero-coupon bonds outstanding with a total face value of $45 million. These bonds mature in 2 years. The risk-free rate is 4 percent per year compounded continuously. What is the value of d1?
2. Assume you are being granted at-the-money stock options today when the stock is trading at $32 a share. These options mature in one year, the continuously compounded risk-free rate is 4.2 percent, and the volatility of the stock’s returns is 22 percent. What is the value of d2 as it is used in the Black-Scholes model?
3. Sam has been granted options on 50,000 shares. The stock is currently trading at $17 a share and the options are at the money. The volatility of the stock returns averages 16 percent. The options mature in 2 years and the risk-free rate is 3.45 percent. N(d1) is .662055 and N(d2) is .576052. Given this information, what is the value of a call option on one share of this stock?
In a CAPM framework, prohibiting short sales: The beta of an efficient portfolio: Which of the following is not a general conclusion of studies of stock prices? The fact that superior returns can not be made by selling stocks that cut dividends is ev..
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You purchased a zero coupon bond one year ago for $173.85. The market interest rate is now 9 percent. If the bond had 20 years to maturity when you originally purchased it, what was your total return for the past year? Assume semiannual compounding. ..
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The LIBOR zero curve is flat at 4% (continuously compounded) out to 2 years. Swap rates for 3- and 4-year annual pay swaps are 4.5% and 5%, respectively. Estimate the LIBOR zero rates for maturities of 3 and 4 years. Give your answers as annual rates..
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If you are buying and selling stock, how would you include the dividends you earned? For eample if I want to sell my stock after two weeks and my dividend is $1.50 & I just sold my stock and made $50.00. Would I add $1.50 to my earnings or do I have ..
Suppose that Stock XYZ is currently trading at $30 and does not pay any dividends. Draw the binomial tree for the stock price.
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