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You own 100 shares of Amazon stock (AMZN) and are concerned that the price will go down. You do not want to sell because you have unrecognized capital gains and are in a high tax bracket.
Using the Black-Scholes model with ?std dev = .21, r=.01, t=December 2014 option, K= today's price, and ignoring dividends, answer the following:
(a) On an ongoing basis, what portfolio should you construct to offset any loss on the stock with profit from an option? (Hint: consider the delta of the stock which measures how many shares of stock equals the movements in one option. Using Black-Scholes, delta = N(d1) - 1 for a put option).(b) What is the approximate cost per month of maintaining this hedge indefinitely? (Approximate this using 8 month option price divided by 8)(c) If the stock price moves by $1, what is the change in value of your portfolio (stock plus option)?(d) If the stock price moves by $100, what is the change in value of your portfolio? Why is it different than part (c)?
You found a comparable company in the same line of business, which is also 100% equity financed. Risk free rate = 3%, market risk premium = 5%, and estimated beta of this comparable company is 0.83
Susan Crossing buy a used Ford Focus for $8,000. Since purchasing car, she has spent the following funds on parts and labor:
Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next eight years, because the firm needs to plow back its earnings to fuel growth.
Explain Usage of the budgeting in business environment and Discuss how budgeting can be used at your place of employment
Discuss the factors that contribute to a successful operating budget performance.
You need to create a portfolio with a duration of 6 years. You can use a 3 year zero-coupon bond and a perpetuity which pays $80 each and every year forever and has yield of 10%. how much of the porfolio value in percentage you would have to invest i..
Suppose you are planning about the purchase of a $1000 par value bond that pays interest of $70 each six months and has ten years to go before it matures.
At a 9% interest rate, what is the present value of these cash returns?
Large Industries annual bonds are selling at 102 (i.e., the price is $1,020 for the $1,000 bond). There are 6 years remaining until maturity on the bonds and the yield to maturity is 5.75%. Find the coupon rate. (Note: you may have to use a trial ..
Determining risk as well as return of a portfolio and explain how the Selected Realized Returns
The director of marketing for Eastern Computer Corporation, Callie Keller, had the following discussion with the company controller, Isaiah Johnson, on July 26 of the current year: Callie: Isaiah, it looks like I'm going to spend much less than indic..
Howard Company bought factory equipment with invoice price of $90,000. Other costs incurred were freight costs, $2,100; installation wiring and foundation, $2,200; material and labor costs in testing equipment, $700
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