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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 ? = .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)?
Computation of NPV of lump sum future receipt and annuity receipts also How much should Mr. & Mrs. Smith deposit now in a bank account paying 9 percent to reach financial happiness during retirement
Large business combinations in Japan normally carried out through reciprocal ownership of common stock these networks, or keiretsu involve a large number of diversified companies centered around a large bank,
Ben remembers from finance class that the shorter the amortization period, the less total interest you will pay. Calculate how much interest they would save if they made monthly payments over a 20 year amortization rather than a 25 year amortiza..
Explain the concept of Time Value of Money (TVM). What are its components? why is it a foundational principle of finance?
Find out the interest rate for Warren when $2,500 is returned one year later. Find out the rate if $2,500 will be returned in five years?
Briefly discuss the impact of the changes in asset turnover and financial leverage on ROE over the the three years.
Explain the current economic and financial condition we are facing today. How will the current economic and financial condition impact future growth of businesses?
The Cookie Shoppe expects sales of $437,500 next year. The profit margin is 5.3 percent and the firm has a 30 percent dividend payout ratio. What is the projected increase in retained earnings?
If the required return is 11 percent and the company just paid a $1.45 dividend, what is the current share price?
Annual expenses are expected to be: labor of $50,000; $30,000 in rent; $10,000 in equipment depreciation. The tax rate is 35%. Calculate the expected Net Income.
Suppose that two years after the bonds were issued, the required interest rate fell to 7 percent. What would be the bond's value?
Medco Company can sell preferred stock for $80 with an estimated flotation expense of $3. It is anticipated that the preferred stock will pay $6 per share in dividends.
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