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Question 1
(a) The price of a European call option on a stock with a strike price of $50 is $6. The stock price is $51, the continuously compounded risk-free rate (all maturities) is 6% and the time to maturity is one year. A dividend of $1 is expected in six months. What is the price of a one-year European put option on the stock with a strike price of $50?
(b) Assume six-month forward price of XYZ stock is $58. The stock pays no dividends. The six-month continuously compounded rate of interest is 4%. If the price of a put option is $3 what will be the maximum possible exercise price X that is consistent within no arbitrage context?
Question 2
The current price of a non-dividend-paying stock is $40. Over the next year it is expected to rise to $42 or fall to $37. An investor buys put options with a strike price of $41. Explain the number of shares necessary and the condition required to hedge the position?
Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest. How much control does the Fed have over this longer real rate?
Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.
Accounting problems, Draw a detailed timeline incorporating the dividends, calculate the exact Payback Period b) the discounted Payback Period. the IRR, the NPV, the Profitability Index.
Term Structure of Interest Rates
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Prepare the bank reconciliation for company.
Create a cost-benefit analysis to evaluate the project
Theory of Interest: NPV, IRR, Nominal and Real, Amortization, Sinking Fund, TWRR, DWRR
Distinguish between liquidity and profitability.
Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.
Simple Interest, Compound interest, discount rate, force of interest, AV, PV
CAPM and Venture Capital
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