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You own 100 shares of Amazon stock (AMZN) and are concerned that the price will go down. You do not want to sell because you have unrecognized capital gains and are in a high tax bracket.
Using the Black-Scholes model with ?std dev = .21, r=.01, t=December 2014 option, K= today's price, and ignoring dividends, answer the following:
(a) On an ongoing basis, what portfolio should you construct to offset any loss on the stock with profit from an option? (Hint: consider the delta of the stock which measures how many shares of stock equals the movements in one option. Using Black-Scholes, delta = N(d1) - 1 for a put option).(b) What is the approximate cost per month of maintaining this hedge indefinitely? (Approximate this using 8 month option price divided by 8)(c) If the stock price moves by $1, what is the change in value of your portfolio (stock plus option)?(d) If the stock price moves by $100, what is the change in value of your portfolio? Why is it different than part (c)?
Describe the various macroeconomic factors which determine exchange rates? What is the justification for existence of International Fisher Effect?
You are approached by a client who would like to start his own business. The client plans to take the company public in five years. What are the benefits of organizing the business as a corporation?
Calculate each projects payback period cutoff. Which would you accept if Puppy's payback period cutoff is 2 years?
The Hart Mountain Corporation has recently found a new type of kitty litter which is extremely absorbent. The firm expects to enjoy an unusually high growth rate for two years while it has exclusive rights to the raw material used to make the kitty l..
Evaluate the term Capital budgeting and What is the yield to call of Hood Corporation's bonds
How much in account 15 years later at age 55 if the account continues to earn 9.5% per year but you discontinued making new contributions?
What is the likely impact of this policy on Asian foreign exchange reserves? On Asian inflation? On Asian export competitiveness? On Asian living standards?
The one-year spot interest rate is r1=6.7% and the two year rate is r2=7.7%. I fthe expectations theory is correct, what is the expected one-year interest rate in one year's time?
An investor undertakes an investment in Russia in rubles (the local currency). How is the investor affected if the ruble ends up devaluing more rapidly than originally expected with respect to the U.S dollar?
Computation of cost of capital for the funds needed to meet the expansion goal and This capital structure is believed to be optimal
An investor who writes standard call options against stock held in his or her portfolio is said to be selling what type of options and for Volpe Corporation's traded call options
Organizations merge and grow bigger and differentiate, which can cause problems in functional structure.
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