What should be value of the hedged portfolio at expiration

Assignment Help Financial Management

Reference no: EM13212969

A stock price is currently $42. Its stock price will be either $45 or $38 one year from now. The risk-free rate is 5%. A one-year call on the stock has an exercise price of $40.

(a) What are its intrinsic values at stock prices of $45 and $38, respectively?

(b) What should be the hedge ratio?

(d) What is the value of the call today?

(e) Verify your answer using the risk-neutral approach-do not just say that you have the same answer; you will need to show the work that the two approaches give the same answer

Reference no: EM13212969

Questions Cloud

Find infinitely repeated model between two firms : Consider the following infinitely repeated model between two firms. Each period, the firms earn profits of 10 if they successfully collude. If a firm deviates from the agreement, it earns 15 in the period in which it cheats. In each period that th..

Audit of macro environment of the pharmaceutical industry : Undertake an audit of the macro environment of the pharmaceutical industry sector, to identify the key environmental influences on organizations operating within this industry and the nature of its impact within the industry.

Determine marginal cost which is constant over output : Supposing that when the three firms set the same price they share the market evenly, demonstrate that collusion at the monopoly price is not sustainable, using the Bertrand Nash Equilibrium of marginal cost pricing forever as the punishment strate..

Calculate the specific heat at constant pressure : Calculate the specific heat at constant pressure, and specific heat at constant volume for propane which is compressed at the following inlet condition;

What should be value of the hedged portfolio at expiration : What are its intrinsic values at stock prices of $45 and $38, respectively, what should be the hedge ratio and what should be the value of the hedged portfolio at expiration

Calculate the diffusion co-efficient : The diffusion constant (Do) and activation energy (Q) of C in BCC Fe is 0.01 cm2/sec and 80kJ/mol respectively. In FCC Fe, the values are 0.21 cm2/sec and 148kJ/mol. At exactly 910oC these two phases can co-exist.

Define marginal cost pricing forever as punishment strategy : Suppose that there are three firms, who produce homogeneous products, and whom have the same marginal cost which is constant over output. These firms play an infinitely repeated Bertrand pricing game. Each period they simultaneously set prices.

Explain briefly the trend in the stabilities of oxidation : Describe briefly the trend in the stabilities of oxidation states within d-metal? [High and low oxidation states]

How many engagement points on the flywheel : a full revolution press has 100 rpm flywheel rotation.it has two handed trip devices mounted 20 inches from point of operation how many engagement points on the flywheel would be nessary to make this machine safe?

User Account

All Pages