The risk free rate on a continuously compounded basis

Assignment Help Financial Management

Reference no: EM131304646

Stock ABC is trading for $50. The stock has a standard deviation on an annual basis of 20%. The risk free rate on a continuously compounded basis is 5%.

a. What is the price of a call that expires in 26 days and has a strike price of 50?

b. What is the price of a put that expires in 26 days and has a strike price of 50?

c. If the put was currently trading for $1.10 could you generate arbitrage profits? If so, show all the steps you would take and calculate your profits.

d. What is delta of each option?

Reference no: EM131304646

Questions Cloud

Consequences of repeat of problems international markets : Do you agree with this statement the consequences of a repeat of the problems international markets faced in 2008, with the government unable to step in this time, would be that Australia would enter "the world of the countries that suffered very bad..

What would be the benefit to multinational corporations : What would be the benefit to multinational corporations, such as CEMEX, Marks and Spencer, and Dow Corning, of participating in this effort? What distinctive contributions can social entrepreneurs make to promoting clean cook stove.

Which is facing increasing competition from cheaper : Gork Musical Instruments produces several products, one of which is facing increasing competition from cheaper, plastic alternatives. It expects that in coming years the number of units sold will fall by 10% pa. However, because of the competition fr..

What is the present value of the annuity : A 10-year annuity pays $2,500 per month, and payments are made at the end of each month. The interest rate is 9 percent compounded monthly for the first four years, and 7 percent compounded monthly thereafter. What is the present value of the annuity..

The risk free rate on a continuously compounded basis : Stock ABC is trading for $50. The stock has a standard deviation on an annual basis of 20%. The risk free rate on a continuously compounded basis is 5%. What is the price of a call that expires in 26 days and has a strike price of 50? If the put was ..

What will be the value of a derivative that pays : A stock price is currently $20. It is known at the end of one month it will either by $23 or $18. The risk free rate is 6%. Suppose ST is the stock price at the end on one month. What will be the value of a derivative that pays 2ST-40 at this time?

Compute return on net operating assets : Compute return on net operating assets (RNOA). Compute return on common equity using its three major components. Analyze the disaggregation of return on common equity. What is the "leverage advantage (in percent return) accruing to common equity"?

What is its operating cash flow : A firm has a net income of 300, an increase in accounts receivables of 30, depreciation of 55 and a decrease in accounts payable of 25. What is its operating cash flow (CFO)?

Calculate the value of a call option on the stock : Calculate the value of a call option on the stock with an exercise price of $132.

User Account

All Pages