The prices of two stocks are governed

Assignment Help Financial Management
Reference no: EM13924029

The prices of two stocks are governed by the following:

dX(t)/ X(t) = 0.05dt + 0.3dZ(t)

dY(t)/Y (t) = 0.04dt + 0.25dZ(t) where Z(t) is a standard Brownian motion.

Additionally, you know that the current stock prices are X(0) = 24 and Y (0) = 48. You wish to construct a risk-free portfolio that consists of 100 shares of X, N shares of Y , and investing B dollars at the risk-free rate. The cost of the portfolio should be 0. (a) N =?

Reference no: EM13924029

Questions Cloud

What are bond ratings and what is their purpose : What are bond ratings, and what is their purpose? What is the difference between investment-grade bonds and high-yield (junk) bonds?
Differences between general controls and application control : Discuss three examples of how evaluating control risk in an electronic environment differs from evaluating control risk in a manual environment. Also, give three examples of how the two environments are the same.
What is the aftertax cash flow from the sale of this asset : Consider an asset that costs $974,000 and is depreciated straight-line to zero over its ten-year tax life. The asset is to be used in a seven-year project; at the end of the project, the asset can be sold for $136,000. If the relevant tax rate is 30 ..
Design a pv + battery energy storage system : Design a PV + Battery Energy Storage System for Residential Applications and conduct a survey of commercially available solar panels
The prices of two stocks are governed : Additionally, you know that the current stock prices are X(0) = 24 and Y (0) = 48. You wish to construct a risk-free portfolio that consists of 100 shares of X, N shares of Y , and investing B dollars at the risk-free rate. The cost of the portfolio ..
Compare the performance of several country markets : Compare the performance of several country markets. Using the "index" tab, do a search on FTSE. You will obtain a list of many FTSE indexes.
Provides highest possible return for a new company and why : In the hope of high returns, venture capitalists provide funds to finance new (startup) companies. However, potential competitors and structures of the market into which the new firm enters are extremely important in realization of profits.
What is the beta of the portfolio of three stocks : Given the following information about Stock A: Estimate the price of stock A at the end of the year. What is the beta of the portfolio of three stocks?
Graph the production possibilities frontier of the american : American and Japanese workers can each produce 4 cars a year.  An American worker can produce 10 tons of grain a year, whereas a Japanese worker can produce 5 tons of grain a year.  To keep things simple, assume that each country has 100 million work..

Reviews

Write a Review

 

Financial Management Questions & Answers

  The first financial statement firm produces

The first financial statement a firm produces is the _____.

  Growth rate of dividends per share expected by investors

Zeniba Inc.’s stock is currently selling for $23.56 per share. The company just paid a dividend = $2.00 per share (i.e., D0 = $2.00), and investors expect the dividend to grow at a constant rate out into the future. Investors require a minimum annual..

  Compare the two cases of owning the stock versus not owning

We buy a put option. Its premium is $4 and the strike price is $44. The current market price is $50. If the price drops to $35, shall we exercise the put option? If not, why not, and If yes, why yes? Assume that we buy the stock at $30. Compare the t..

  Most of the stock valuation models discussed in the textbook

Most of the stock valuation models discussed in the textbook (with the exception of the P/E multiple model) employ a discount rate to find the present value of a particular variable. Are the value estimates derived from the models positively or negat..

  Organizational structure is defined

Organizational structure is defined as

  The efficient market hypothesis supports

The efficient market hypothesis supports which one of these statements?

  Purchase merchandise for resale on credit

Which account below would be credited to record this transaction: purchase merchandise for resale on credit?

  About the retirement plan

You are considering your retirement, and would like to have accumulated $1,839,829 by the time you retire in 27 years. If you anticipate that your average compounded rate of return over the 27 years until retirement will be 12%, how much will you nee..

  What is your required return in order to invest in company

You are valuing stock in Tofrandi Naturals and are estimating their Beta at 0.2, the risk free rate at 3.16%, and equity risk premium at 6.69. What is your required return in order to invest in this company?

  Social-moral-environmental and ethical issues

Social, moral, environmental and ethical issues are part of the investment process and cannot be ignored by financial planners / managers. The burden of these costs fall unevenly on different firms. Some of these firms, especially the large companies..

  After-tax cost of preferred stock if the firms tax rate

A firm is paying an annual dividend of $3.25 for its preferred stock selling for $57.00. There is a selling cost of $3.30. What is the after-tax cost of preferred stock if the firm's tax rate is 34%?

  What must the risk-free rate be

A stock has an expected return of 14 percent, its beta is 1.25, and the expected return on the market is 12 percent. What must the risk-free rate be? (Do not round your intermediate calculations.)

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