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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 ? = .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)?
Sorenson Corporation's expected year-end dividend is $1.50, its required return is rS = 12.00 percent, its dividend yield is 8.00%, and its growth rate is expected to be constant in the future.
For your job as the business reporter for a local newspaper, you are given the assignment of putting together a series of articles on the multinational finance and the international currency markets for your readers.
Find out the future value of following annuities. The first payment in these annuities is made at the end of year one. That is, they're are ordinary annuities.
What assumptions are significant when applying the Capital Asset Pricing Model and what are the underlying strengths and weaknesses of this application?
If the risk-free rate is 4.50 percent and the expected return on the market is 12 percent, what is Dybvig's cost of equity capital?
What are the key Market Structure and Strategic Choice issues facing sales automotive industry / company / consumers and how would you as marketer deal with them?
Ninja Co. issued 13-year bonds a year ago at a coupon rate of 7.9 percent. The bonds make semiannual payments. If the YTM on these bonds is 6.2 percent, what is the current bond price?
Objective questions on free cash flow, debt equity ratio, APV, NPV and dividend policy and what is the most likely prediction after a firm reduces its regular dividend payment
You own a pipeline which will generate a $2 million cash return over coming year. The pipeline's operating costs are negligible. What is the PV of the pipeline's cash flows if its cash flows are assumed to last forever? What is the PV of the cash flo..
You must determine the intrinsic value of Tsetseko Technologies' stock. Tsetseko's end-of-year free cash flow (FCF) is expected to be $17.50 million, and it is expected to increase at a constant rate of 7 percent a year thereafter.
What is the theoretical value of the call and based on your answer, recommend a riskless strategy. If the stock price decreases by $1, how will the option position offset the loss
Calloway Cab Corporation determines its break even strictly on the basis of cash expenditures related to fixed expenses. Its total fixed costs are $400,000, but 20% of this value is represented by depreciation.
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