Calculate probability that stock will increase its value

Assignment Help Operation Management

Reference no: EM131128732

Future prices of a stock are modeled with a 1-period binomial tree, the period being one year. You are given: (i) The continuously compounded risk free interest rate is 5%. (ii) The stock pays dividends proportional to its price at a continuous rate of 2%. (iii) The continuously compounded expected annual return for the stock is 15%. (iv) sigma = 0.3. (v) The binomial tree is constructed using forward prices. Calculate the probability that the stock will increase its value:

Reference no: EM131128732

Questions Cloud

Determine importance of predicting the pricing strategies : Determine the importance of predicting the pricing strategies of rival firms in an industry characterized by mutual interdependence. Examine the common price setting strategies of airlines that use game theory.

Describes three different statuses : Describes three different statuses that you occupy in society, Explain the role expectations of each status , Provide an example of role strain,Provide an example of role conflict.

What kind of health insurance does joe have : Don, a team leader in a college business course, wanted to fail Diane, a team member that he said did "nothing." Dr. Smart, the professor, refused to fail her, stating that the other team members had all given her satisfactory evaluations on their..

Businesses need information technology : The final deliverable will depend upon the case and creativity will not only be allowed but valued--for example, writing responses in the form of a memo if that seems appropriate, using charts and graphs.

Calculate probability that stock will increase its value : Future prices of a stock are modeled with a 1-period binomial tree, the period being one year. You are given: (i) The continuously compounded risk free interest rate is 5%. (ii) The stock pays dividends proportional to its price at a continuous rate ..

What is the chemical symbol of arsenic : What is the chemical symbol of arsenic, and what group/family does it belong to? Solve for the minimum volume of soil that will be excavated in cubic yards?

Calculate the payback period for the re-cover project : Calculate the budgeted profit after specific fixed costs, for year 1 of the re-cover operation, assuming demand can be met in full and calculate the payback period for the re-cover project.

What is standard applied to examine managers duty of care : What is the standard applied to examine managers' duty of care? Sunland Corporation issued dividends to its shareholders. Each shareholder was aware that the corporation would be insolvent and unable to pay its creditors following the dividend distri..

Determine which compound poses the greater risk of fire : Determine which compound poses the greater risk of fire and explosion at 68ºF (20ºC). Explain your choice. In general, discuss how vapor pressure affects the volatility of a liquid?

User Account

All Pages