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Assume that the stock in Problem is due to go ex-dividend in 1 months. The expected dividend is 50 cents.(a) What is the price of the option if it is a European call?
(b) What is the price of the option if it is a European put?
(c) If the option is an American call, are there any circumstances under which it will be exercised early?Problem :Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price is $29, the risk-free interest rate is 5%, the volatility is 25% per annum, and the time to maturity is 4 months.(a) What is the price of the option if it is a European call?
(b) What is the price of the option if it is an American call?
(c) What is the price of the option if it is a European put?
(d) Verify that put-call parity holds.
Bells manufacturing estimates that the sales for the 2016 financial year will be $2.25 million. No new borrowing was obtained and, therefore, the interest expense remained unchanged at $24,500. Compile the pro forma income statement for the year ende..
Given that exercise price is $75, call option premium is $3.5, put option premium is $1, both options have a time to maturity of 32 days, and the risk free rate is 5% p.a., please show how you could create a "synthetic stock" that could serve as the ..
The Talley Corporation had a taxable income of $500,000 from operations after all operating costs but before (1) interest charges of $70,000, (2) dividends received of $80,000, (3) dividends paid of $40,000, and (4) income taxes. How much is the firm..
Calculate the present value today of a $4,450 cash flow expected to be received exactly 9 years from today if the required rate of return on this cash flow is 8% per year. Calculate the present value of the following series of cash flows if the appli..
Over the period of 1926 through 2008, the annual rate of return on _____ has been more volatile than the annual rate of return on_____. .
KADS, Inc., has spent $350,000 on research to develop a new computer game. The firm is planning to spend $150,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $45..
Marshall's & Co. purchased a corner lot in Eglon City five years ago at a cost of $640,000. The lot was recently appraised at $810,000. At the time of the purchase, the company spent $50,000 to grade the lot and another $4,000 to build a small buildi..
Four economic classifications of mergers are (1) horizontal, (2) vertical, (3) conglomerate, and (4) congeneric. Explain the significance of these terms in merger analysis with regard to:
Granite Graphics has a pretax cost of debt of 7.68 percent and a cost of equity of 15.2 percent. The firm uses the subjective approach to determine project discount rates. The project has an initial cost of $4.3 million and produces cash inflows of $..
What are the portfolio weights for a portfolio that has 152 shares of Stock A that sell for $30 per share and 120 shares of Stock B that sell for $20 per share? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g.,..
Each financial decision made by a corporate manager can be evaluated by its direct impact on the corporation's stock price.
Which one of these is considered to be the safest investment? The idea that investors in a common stock may expect a lower total return if they purchase a stock with limited price volatility rather than one with high price volatility suggests that:
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