User Account

All Pages

Calculate the price of a european call option

Assignment Help Finance Basics
Reference no: EM133057196

The shares of DCB Bank are currently valued at $21 and they have a volatility of 19% pa. The risk free rate is 6% pa. You many find this table showing the values of the standard normal cumulative distribution function useful.

a) Calculate the price of a European call option on these shares, with strike price $27 and a term to expiration of 6 years. Give your answer in dollars and cents to the nearest cent.

Price of call option = $ ____________

DCB bank have just announced that a dividend of $0.78 will be paid in 2 years time and an additional dividend of $1.36 will be paid in 4 years time.

b) Taking this new information into account, calculate the adjusted price of the call option. Give your answer in dollars and cents to the nearest cent and assume that the time between the ex-dividend date and actual payment of the dividend has a negligible effect.

Adjusted price of call option = $ ____________

HINT: This question does not interpolate values from the standard normal cumulative distribution. For this particular question, when looking up z values from the distribution, first round your calculated value of z to two decimal places and then use that rounded z value to find F(z).

Reference no: EM133057196

Questions Cloud

Record the journal entry for Dairfax purchase : The price of Blueberry shares at that point in time was $8. Due to insufficient capital, the deal did not close. Record the journal entry for Dairfax purchase
What is the expected number of purchases : The records of a fancy shoe store show that 60% of customers making a purchase pay by credit card. Suppose 10 customers purchased shoes from the store yesterday
Guess for the rate of return of the stock : Investors expect the market rate of return in the coming year to be 12%. T-Bills rate is 4% and stock Y has a beta of 0.5. The market value of its outstanding e
Develop a Statement of Cash Flows for Best Products : Cash receipt from the sale of equipment (Cost-$84,000; Accumulated Depreciation-$8,000) is $74,000. Develop a Statement of Cash Flows for Best Products
Calculate the price of a european call option : a) Calculate the price of a European call option on these shares, with strike price $27 and a term to expiration of 6 years. Give your answer in dollars and cen
Compute the net present value of this investment : The equipment costs $374,400 and has a 4-year life and no salvage value. Compute the net present value of this investment
Discuss the importance of certifications : Discuss the importance of certifications and the future importance of this knowledge.
Difference in monthly payment the libor manipulation : Assume that the LIBOR rate quoted at the beginning of year three was manipulated as a result of collusion among the banks. Specifically, assume that the "true"
Calculate the present value of cca tax shield : A three-year project requires an initial investment in fixed assets in the amount of $20,000. The equipment belongs to a 15% CCA class.

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd