Profit on initial investment, Financial Accounting

Assignment Help:

The common stock of the PP Corporation has been trading in a narrow price range for the past month, and you are convinced it is going to break far out that range in the next 3 months. You do not know whether it will go up or down, however. The current price of the stock is $100 per share, and the price of a 3-month call option at an exercise price of $100 is $10.

(a) If the risk-free interest rate is 10% per year, what must be the price of a 3-month put option on PP stock at an exercise price of $100? (The stock pays no dividends)

(b) What would be a simple options strategy to exploit your conviction about the stock price's future movements? How far would it have to move in either direction for you to make a profit on your initial investment?


Related Discussions:- Profit on initial investment

Draw the event and decision tree, Suppose Real Option Inc. has a product th...

Suppose Real Option Inc. has a product that generates the following cash flow. At t=1, the demand can be high or low with equal probability. If demand is high (low) the cash flo

Formula of annuity, In common terms the future value of an annuity or regul...

In common terms the future value of an annuity or regular annuity is specified by the subsequent formula: FVA n = A (1 + k ) n -1 + A (1 + k ) n - 2 + ... + A   .............

Fair value adjustments, explain the purpose and circumstances of using fair...

explain the purpose and circumstances of using fair values in preparing consolidated financial statements

Stock''s expected constant growth rate, Normal 0 false false ...

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4 The beta coefficient

Total prime cost, Interstate Manufacturing produces brass fasteners and in...

Interstate Manufacturing produces brass fasteners and incurred the following costs for the year just ended: Materials and supplies used Brass

Dividends in arrears on cumulative preferred stock, Q. Dividends in arrears...

Q. Dividends in arrears on cumulative preferred stock a. are shown in stockholders' equity of the balance sheet. b. must be paid before common stockholders can receive a dividend.

Determine the amount and character of the recognized gain, On May 2, 1986, ...

On May 2, 1986, Hannah acquired residential real estate for $450,000. Of the cost, $100,000 was allocated to the land and $350,000 to the building. On January 20, 2013, the buildin

Illustration of marked up by an additional amount, Illustration of marked u...

Illustration of marked up by an additional amount E Limited sent goods to its branch in Thika invoiced at selling price, which was cost plus 505 of cost.  On 1st July 20X2, the

Determine the optimal price for each sub-group, The objective is to assess ...

The objective is to assess the incentive to acquire information on consumer characteristics. We consider a monopoly. The firm incurs no production cost. There are M consumers with

Accounting Project, Can you help me balance my account number out

Can you help me balance my account number out

Write Your Message!

Captcha
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