User Account

All Pages

What is the fair value for the one year amazon

Assignment Help Finance Basics
Reference no: EM132417217

Amazon stock is trading at $2000 while a European put option on Amazon that expires in one year with strike price $2100 is trading at $200. The risk free annual interest rate is 5% and the short rebate on Amazon is also 5%. Please use simple compounding of interest in all calculation for this problem

a. What is the fair value for the one year Amazon forward price?

b. Using put/call parity with simple compounding of interest, find the price of a European call option on Amazon that expires in one year with strike price $2100. You may assume there is no arbitrage in the market.

c. The price of Amazon suddenly rises 10% over the next hour from $2000 to $2200, while the market price of the one year Amazon forward remains unchanged at the fair value you found in part a. Does an arbitrage opportunity exist ? If so, specify the exact components of the portfolio you need to capture the arbitrage, and the exact arbitrage profit.

Reference no: EM132417217

Questions Cloud

Length of the company cash conversion cycle : What is the change in the Payables deferral period if the payables turnover has gone from an average of 10.50 times to 11.45 times per year?
What is the immediate stock price reaction : What is the immediate stock price reaction? Ignore taxes and assume that the repurchase program conveys no information about operating profitability or business
What is the? bond''s yield to? maturity : The bond can be called at par in two years or anytime thereafter on a coupon payment date. It has a price of $99.16.
Costs of capital kept constant : What is the change in the firm's WACC if it sells 10,000 7-year zero coupon bonds ($1,000 par value) with an 8.2 percent market required rate of return
What is the fair value for the one year amazon : a. What is the fair value for the one year Amazon forward price?
What is the risk-free rate in the model : Portfolio B's expected return is 10% and its ß_B is 0.25. Using the one factor Arbitrage Pricing Theory, what is the risk-free rate in the model?
Cost of equity for unlevered : Compute base case NPV, PV of depreciation tax shield, PV of interest tax shield, and the APV of the project.
Calculate the initial cash flow : Sales from the project are expected to be $300,000 per year and operating costs amount to $100,000 per year. The tax rate is 30 percent.
Properly label the equilibrium price and quantity : Properly label the equilibrium price and quantity. Then show what will happen to equilibrium if the City Council imposes a price ceiling at 16.

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd