What is the payoff from a call option on the cumulative

Assignment Help Financial Management
Reference no: EM131073263

Weather derivatives are often written in terms of HDD and CDD, heating degree days and cooling degree days, where on a given day, HDD = max(0,65-A) CDD = max(0,A-65) A = average of the day’s low and high temperatures. The cumulative HDD and cumulative CDD over a span of time is just the sum of HDDs or CDDs. Heating degree days are a measure of the amount you have to heat in order to keep a temperature of 65 and cooling degree days are a measure of the amount you have to cool in order to keep an average temperature of 65. Suppose that each day in July (1st – 31st ) the minimum temperature is 68 and the maximum is 82. What is the payoff from a call option on the cumulative CDD during July with a strike of 250 and a payment of $5,000 per degree day?

Reference no: EM131073263

Questions Cloud

What is the firms weighted average cost of capital : BlockOut Co. has 72,814 bonds outstanding that are selling at par value. The bonds yield 8.9 percent. The company also has 4.5 million shares of common stock outstanding. The stock has a beta of 1.11 and sells for $43.5 a share. The U.S. Treasury bil..
Decrease the time between customer order and delivery : Imagine you are a representative of management in the company you have selected for your Week Six assignment and you must make a capital budgeting decision. The decision is to implement a new computer network system to decrease the time between custo..
Large communications firm : Randall Wallace is a vice president at a large communications firm. His compensation includes a salary of $500,000, a bonus of $100,000 and a stock option package that allows him to purchase 30,000 shares of the company’s stock at $50 per share.
Use the historical average risk premium : Suppose the rate on a U.S. T-bill is 1.5%, use the historical average risk premium on large company common stocks over U.S. T-bills from Chapter 12, and the CAPM equation to estimate the return investors should expect from each of the stocks in the t..
What is the payoff from a call option on the cumulative : Weather derivatives are often written in terms of HDD and CDD, heating degree days and cooling degree days, where on a given day, HDD = max(0,65-A) CDD = max(0,A-65) A = average of the day’s low and high temperatures. What is the payoff from a call o..
What is the firm pretax cost of debt : GIMP Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 2 years to maturity that is quoted at 105 percent of face value. The issue makes annual payments and has an embedded cost (coupon rate) of 9.8 percent annu..
What is the total value of your stock after the stock split : Microsoft is currently trading at $36 per share. You have 10,000 shares of Microsoft. The company is going to announce a 3-1 stock split to the public. What is the total value of your stock after the stock split?
Determine the cost of this loan after taxes as percentage : You are the CFO of a relatively small firm wishing to borrow 500,000 euros for an expansion project you plan to execute in France. This project is expected to take 6 months to complete, at which time your firm will repay the 500,000 euros plus the ex..
Calculate realized and recognized gain or loss : Elizabeth Smart’s personal residence is condemned as part of the urbanization enlightened project. Her adjusted basis of the residence is $485,000. She receives condemnation proceeds of $465,000, and invests the proceeds in stocks and bonds. Calculat..

Reviews

Write a Review

 

Financial Management Questions & Answers

  What will be start-ups ratio of market value to book value

Start-Up Industries is a new firm that has raised $260 million by selling shares of stock. Management plans to earn a 20% rate of return on equity, which is more than the 15% rate of return available on comparable-risk investments. What will be Start..

  What is the value of net working capital

A company has total asset of $ 31300 and long term debt of $8600, net fixed asset is $19300 and owners equity of $21100 what is the value of net working capital.

  Increase or decrease-companys cash change

Increase or decrease. Based on the information below, by how much did the company’s cash change?

  What is the company after-tax cost of new debt

Long-term Borrowing Company (LBC) is raising new capital by selling bonds. Its investment bankers have estimated that if the company sets the coupon rate for the new bonds at 8% paid semiannually, The bankers have estimated that the cost of selling t..

  Investment banking firm-two different salary arrangements

You’ve just joined the investment banking firm of Dewey, Cheatum, and Howe. They’ve offered you two different salary arrangements. You can have $72,000 per year for the next two years, or you can have $61,000 per year for the next two years, along wi..

  Yankee inc a us based mnc has recently decided to expand

yankee inc. a u.s. based mnc has recently decided to expand its international trade relationship by exporting to

  In order to maintain his high standards of construction

Hassan operates a building company specializing in homes built for the Wave, in Muscat. In order to maintain his high standards of construction, Hassan kept his company small and never had more than two projects going at one time. The contract price,..

  How many years do these bonds have left until they mature

LKD Co. has 10 percent coupon bonds with a YTM of 8.6 percent. the current yield on these bonds is 9.2 percent. How many years do these bonds have left until they mature?

  What is the equivalent annual savings

Gluon Inc. is considering the purchase of a new high pressure glueball. It can purchase the glueball for $220,000 and sell its old low-pressure glueball, which is fully depreciated, for $40,000. The new equipment has a 10-year useful life and will sa..

  Equivalent annual annuity of the most profitable project

Carlyle Inc is considering two mutually exclusive projects. Both require an initial investment of 15,000 at t= 0. Project S has an expected life of 2 years with after cash inflows of 7,000 and 12000 at the end of years 1 and 2, respectively. Project ..

  Business people is important part of business deal

In China, the relationship between business people is an important part of a business deal. How can knowledge of the local language help build that trust? What can be learned from the experiences of Martin Brady, a British businessman enrolled in the..

  What is its price to earnings ratio

Plyler Overhead Door has $1,747,000 in sales, generates a net profit margin is 9.3%, and the firm has 18,000 shares of stock outstanding. The company’s stock price is $130. What is its price to earnings ratio?

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!

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