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A stock is currently priced at $25. In 6 months it will either be $26 or $30. The risk-free rate is 12% per annum with continuous compounding.
Verify the assumption on u and d given the following theorem:
Theorem: If the market has no arbitrage opportunities, then the price of any derivative that can be replicated with traded assets such as stock and cash, is the discounted expected payoff of the derivative in the risk-neutral world.
Could someone please explain an answer for this problem?
A firm has current assets that could be sold for their book value of $14 million. The book value of its fixed assets is $52 million, but they could be sold for $82 million today. The firm has total debt with a book value of $32 million, but interest ..
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Suppose that a fund that tracks the S&P has mean E(RM) = 16% and standard deviation ?M = 10%, and suppose that the T-bill rate Rf = 8%. What is the expected return and standard deviation of a portfolio that has 50% of its wealth in the risk-free asse..
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