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1. A stock trades at $20. Its annual volatility is 18%. The risk-free rate is 3%. Calculate the price of a European call option and put option with strike K = 20 and T equal to 4 months. 206 CHAPTER 11. THE GREEKS
2. (Continued) Calculate the ? of a portfolio consisting of 2 long calls and 1 short put from the previous problem. How many shares of the stock would you short in order to build a new portfolio that is delta-neutral?
3. (Continued) If the stock moves down 15 cents, what is the exact change in price of the delta-neutral portfolio from the previous problem?
4. (Continued) What is the ν of one of these calls? of one of the puts?
Question:
(Continued) Calculate the ? and the ν of a straddle built from one of the calls and one of the puts. This example illustrates why a straddle built from at-the-money options is close to being delta-neutral and is a bet on volatility.
Compute the current price of the bond. Find the present value of 4 percent × $1,900 (or $76) for 20 years at 12 percent.
Beth Knight, CFA, and David Royal, CFA, are independently analyzing the value of Bishop, Inc. stock.Royal’s valuation of Bishop stock is approximately:
What is the current price if comparable interest rates (yield to maturities) are 5%?
annual interest rates
Would Wal-Mart improve its cash conversion Cycle by reducing or increasing it?
Boeing Corporation has just issued a callable (at par) three-year, 5.2% coupon bond with semi-annual coupon payment. What is the bond's yield to maturity?
Your firm is contemplating the purchase of a new 540,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five year life. It will be worth 48,000 at the end of that time. Suppose your required return on..
Give an example from your own experience where you used a break-even point analysis. What parameters were necessary to find the break-even point? Please include your break-even calculations based on the equation from page 8 in the textbook
If you were analyzing the consumer goods industry, for which kind of company in the industry would the constant growth model work best? Mature companies with relatively predictable earning
A thirty-year annuity has end-of-month payments. The first year the payments are each $120. In subsequent years each payment increases by $5 over what it was the previous year. Find the present value of the annuity if i = 3%.
In the case Murphy Oil V Armstrong, Armstrong was the guarantor on a contract signed between Murphy Oil and Price Oil. Murphy provided oil in the amount of $259,585.75 to Price. Price did not pay this and filed bankruptcy. Determine how your business..
The Dogma Daycare has $750 debt outstanding with pretax cost of 6 percent and its common stock has a market value of $1,250. Dogma’s equity beta is currently 1.77. Calculate Dogma's current cost of equity? What is Dogma’s weighted average cost of ca..
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