Determine the price of stock and profit, Financial Accounting

First's current stock price is $260. The price may rise to $300 or fall to $170 in one month. The risk-free interest rate is 18% per year.

a. Using the replication portfolio approach, determine the price of a call on First's stock with an exercise price of $280 and one month maturity.

b. Using the risk neutral approach, determine the price of a put on First's stock with an exercise price of $280 and one month maturity.

c. If the call option in part (a) is selling at $12, show how you can make arbitrage profit. 

 

 

Posted Date: 2/28/2013 12:03:33 AM | Location : United States







Related Discussions:- Determine the price of stock and profit, Assignment Help, Ask Question on Determine the price of stock and profit, Get Answer, Expert's Help, Determine the price of stock and profit Discussions

Write discussion on Determine the price of stock and profit
Your posts are moderated
Related Questions

Common stock $5 stated value (900,000 shares authorized, 620,000 shares issued)................. $3,100,000 Paid-in capital in excess o stated value-common stock ....1,240,000 Reta

Errors in Financial Statements The following financial statements are available for Sherwood Real Estate Company: Balance Sheet Assets Liabilities Cash . . . . . . . . . . . . . .

1. According to the notes to the financial statements, what method or methods does the company use to depreciate "plant and equipment?" What rate does it use to depreciate plant an

practical problems of chapter one of company accounts

AskA of Surat consign goods to B of Jaipur to be sold at or above invoice price. B is entiled to get a commission of 8% on sales at invoice price plus 25% of any surplus price real

THE TRUSTEE IN BANKRUPTCY 1) Appointment of trustee The trustee is appointed: By the creditors by ordinary resolution, or By the committee of inspection, if so

1.   Briefly explain what is "utility". Briefly explain which is worth more, a dollar today or a dollar in the future (in your explanation be sure and explain "why")? How does infl

Your firm has been hired to examine the financial statements of Bonanza Development Corp. for possible irregularities.  As part of this task, you reviewed certain land transactions