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Suppose that the price of a non-dividend-paying stock is $30, its volatility is 25%, and the risk-free rate for all maturities is 4% per annum. Use DerivaGem European binomial with 60 steps to calculate the cost of setting up the following positions. In each case provide a table showing the relationship between profit and final stock price.
a. A bear spread using European call options with strike prices of $25 and $30 and a maturity of one month.
b. A bull spread using European put options with strike prices of $30 and $35 and a maturity of one month.
c. A butterfly spread using European call options with strike prices of $25, $30, and $35 and a maturity of three months.
d. A butterfly spread using European put options with strike prices of $25, $30, and $35 and a maturity of one month.
e. A strangle using options with strike prices of $25 and $35 and a maturity of one month.
Today is your retirement day (consider that day to be t=0). Your current life retirement savings have the (present) value of $2,000,000. Your retirement savings will be invested in an account earning r=6% per year for (at least) the next 30 years. St..
Last year, Stewart-Stern Inc. reported $11,250 of sales, $4,500 of operating costs other than depreciation, and $1,250 of depreciation. The company had $3,500 of bonds outstanding that carry a 6.5% interest rate, and its federal-plus-state income tax..
Yield to maturity and future price- A bond has a $1,000 par value, 7 years to maturity, and a 9% annual coupon and sells for $1,095. What is its yield to maturity (YTM)? Round your answer to two decimal places.
You are evaluating a proposed expansion of an existing subsidiary located in Switzerland. The cost of the expansion would be SF 21 million. The cash flows from the project would be SF 5.9 million per year for the next five years. The dollar required ..
Which of the following activities will affect a bank's required reserves? a. The local Girl Scout troop collects coins and currency to buy a new camping stove. The troop deposits $ 250 in coins and opens a small time deposit. b. You decide to move $ ..
In some manufacturing operation three types of boreholes for drilling may be used. The cheapest is a stainless high speed steel (HSS), but has a shorter one of gold or another oxide of titanium nitride life. The purchase of HSS drills cost $ 3,500 un..
Bill Dukes has $100,000 invested in a 2-stock portfolio. $77,500 is invested in Stock X and the remainder is invested in Stock Y. X's beta is 1.50 and Y's beta is 0.70. What is the portfolio's beta?
Suppose you buy stock at a price of $83 per share. Three months later, you sell it for $89. You also received a dividend of $.38 per share. What is your annualized return on this investment?
A company builds a new plant and finances its construction by issuing stock. Which ratio is least likely to be affected, all else being equal?
Howell Petroleum, Inc., is trying to evaluate a generation project with the following cash flows: Year Cash Flow 0 –$43,000,000 1 67,500,000 2 –18,000,000 Required: (a) If the company requires a 11 percent return on its investments, what is the NPV o..
Do project financial results affect financial health of the entire organization? Can you think of an example where the reverse holds true as well -- in other words, an example where the financial health of an organization affected project outcomes?
Snider Industries sells on terms of 3/10, net 35. Total sales for the year are $1,869,000. Thirty percent of the customers pay on the 10th day and take discounts; the other 70% pay, on average, 64 days after their purchases. What is the day’s sale ou..
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