Find the range of values for ending stock price in 1 year

Reference no: EM13291208

Stewart Enterprises' current stock price is $60 per share. Call options for this stock exist that permit the holder to purchase one share at an exercise price of $45. These options will expire at the end of 1 year, at which time Stewart's stock will be selling at one of two prices, $40 or $70. The risk-free rate is 7%. As an assistant to the firm's treasurer, you have been asked to perform the following tasks to arrive at the value of the firm's call options.

a.Find the range of values for the ending stock price in 1 year.

Find the range of values for the call option at the option's expiration in 1 year.

b.Equalize the range of payoffs for the stock and the option. (Round your answer to two decimal places) The ratio of ending price to ending stock value is

c.Create a riskless hedged investment. (Round your answer to two decimal places) Portfolio value is

d.What is the cost of the stock in the riskless portfolio? (Round your answer to two decimal places)

e.What is the present value of the riskless portfolio? (Round your answer to two decimal places.)

f.From your answers in Parts d and e, what is the value of the firm's call option? (Round your answer to two decimal places.)

Reference no: EM13291208

Questions Cloud

Generate desired plots of any current or voltage requested : Design and write a program for your calculator that will assist inthe analysis of RLC Parallel and series circuits. The programwill accept inputs: R-Resistance L-Inductance C-Capacitance IL(0) - The initial current through the inductor Vc(0) - The ..

The risk-free rate is 6 percent and the market risk premium : Assume the risk-free rate is 6 percent and the market risk premium is 6 percent. The stock of PCN has a beta of 1.5. The last dividend paid by PCN was $2 per share.a. What would PCN's stock value be if the dividend was expected to grow at a constant:..

Define the vapor pressure of pure carbon tetrachloride : A solution is 0.40 mol % (C6H6) in carbon tetrachloride (CCl4) at 20 degree celcius. the vapor pressure of pure benzene at this temperature is 74.61 mmHg and the vapor pressure of pure carbon tetrachloride is 91.32 mmHg

What is the range of initial speeds allowed to make basket : A basketball leaves a player's hands at a height of 2.20m above the floor. what is the range of initial speeds allowed to make the basket

Find the range of values for ending stock price in 1 year : Equalize the range of payoffs for the stock and the option. (Round your answer to two decimal places) The ratio of ending price to ending stock value is.

Explain what is the ph after 87.78 mls of titrant : In a titration of 38.16 mL of 0.1234 M hydrazoic acid (HN3, Ka = 1.900x10-5) with 0.08559 M KOH, what is the pH after 87.78 mLs of titrant have been added

Write program to include procedure with mutiplies two number : using booth's algorithm,write a program to include a procedure with mutiplies two 16 -bit signed numbers and produces a 32 bit result.the signed numbers are assumed to use a 2's complement notation,and both numbers are to be passed to your procedu..

Find the final velocity just before touching the ground : if you throw a ball upward with an initial speed of 4m/s at 1.5 above the ground, find the final velocity just before touching the ground

Explain sodium hydroxide to copper(ii) nitrate : sodium hydroxide to copper(II) nitrate and use a stirring rod to test if the solution is basic. How do you establish whether the solution is basic

User Account

All Pages