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Consider a stock S whose initial price is S 0 = 55. A call option with expiration date T and strike price 50 has initial price 7.50 and a put option with expiration date T and strike price 60 has initial price 4. You create a portfolio Π by selling short 100 shares of S and using the proceeds to by 500 of the call options described above, and a number of the put options described above in order to make the initial value Π0 of your portfolio equal to zero.
(i) How many of the put options do you buy?
(ii) For what values of ST is the value of the portfolio equal to zero at time T ?
For what values of S T is the value of the portfolio positive at time T ?
For what values of ST is the value of the portfolio negative at time T ?
The RBA Board considers whether to change ‘the cash rate’ on the first Tuesday of every month, except January. What is ‘the cash rate’? Who is lending to whom, and for how long? What is the RBA’s target for consumer price inflation?
Assume that a project has a negative net present value (NPV) of $500 and an internal rate or return (IRR) of 10%.
Stock X has an expected return of 0.08. It has a beta estimated at 1, a risk-free rate of 0.03 and a risk premium of 6.4. Its variance of returns is 0.0029. All returns here are expressed as decimals, not percentages. What is its coefficient of varia..
The limited liability associated with the corporate form of ownership results from
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Sarah is the sole owner of Bluegrass Corporation. The basis and value of her stock investment in Bluegrass are approximately $100,000. In addition, she manages Bluegrass's operations on a full-time basis and pays herself an annual salary of $40,000.
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