Would you expect this to cause call price to rise or fall

Assignment Help Financial Management
Reference no: EM131354466

A stock trades for $45 per share. A call option on that stock has a strike price of $50 and an expiration date one year in the future. The volatility of the stocks return is 30%, and the risk-free rate is 2%. What is the Black and Scholes value of this option? Repeat the analysis assuming that the volatility of the stock’s return is 40%. Intuitively, would you expect this to cause the call price to rise or fall? By how much does the call price change?

Reference no: EM131354466

Questions Cloud

What is this strategy called : XYZ Inc. is a start-up biotech firm. It has a beta of 2.3. Last year is had $17 million in total earnings and 6 million shares outstanding. The company anticipates that its start-up phase will last 3 years. During this period it will have ROE of 29% ..
Calculate the price of two-year call option : The current price of Natasha Corporation stock is $6. In each of the next two years, this stock price can either go up by $2.50 or go down by $2. The stock pays no dividends. The one-year risk-free interest rate is 3% and will remain constant. Using ..
Calculate the price of a two-year european put option : The current price of Natasha Corporation stock is $6. In each of the next two years, this stock price can either go up by $2.50 or go down by $2. Using the Binomial Model, calculate the price of a two-year call option on Natasha stock with a strike p..
Would you expect this to cause call price to rise or fall : A stock trades for $45 per share. A call option on that stock has a strike price of $50 and an expiration date one year in the future. The volatility of the stocks return is 30%, and the risk-free rate is 2%. What is the Black and Scholes value of th..
Bank compounds interest annually : Assume that it is now january 1, 1997. On january 1, 1998, you will deposit $1,000 in to a savings account that pays 8 percent. If the bank compounds interest annually, how much will you have in your account on january 1, 2001? What would your januar..
The bond yield to maturity at the end of the year : A bond that pays coupons annually is issued with a coupon rate of 4.1%, maturity of 25 years, and a yield to maturity of 7.1%. What rate of return will be earned by an investor who purchases the bond and holds it for 1 year if the bond’s yield to mat..
Company issued new securities in the same proportion : Pardon Me, Inc., recently issued new securities to finance a new TV show. The project cost $13.1 million, and the company paid $635,000 in flotation costs. If the company issued new securities in the same proportion as its target capital structure, w..
The market price of home depot stock rises : A six-month call option contract on 100 shares of Home Depot common stock with a strike price of $60 can be purchased for $600. Assuming that the market price of Home Depot stock rises to $75 per share by the expiration date of the option, what is th..

Reviews

Write a Review

Financial Management Questions & Answers

  Stock with an above-average standard deviation

A stock with an above-average standard deviation must also have an above-average beta. A two-stock portfolio will always have a lower standard deviation than a one-stock portfolio. A two-stock portfolio will always have a lower beta than a one-stock ..

  Calculate the dollar-weighted rate of return for the year

An association had a fund balance of 1050 on January 1 and 1160 on December 31. At the end of every month during the year, the association deposited 90 from membership fees. There were withdrawals of 600 on February 28 and 400 on June 30. Calculate t..

  What is the implied yen dollor exchange rate at maturity?

A five-year, 4 percent Euro yen bond sells at par. A comparable risk five-year, 5.5 percent yen/dollar dual-currency bond pays $833.44 at maturity per¥100,000 of face value. It sells for ¥110,000. What is the implied ¥/$ exchange rate at maturity?

  Calculate the company working capital and current ratio

Calculate the company's working capital, current ratio, and acid test ratio at January 30, 2016 and January 31, 2015. Round to 2 decimal places

  Equity discount rate must firm be using to value acquisition

Anacott Steel is acquiring Terafly Incorporated. Terafly is expected to provide Anacott with operating cash flows of $12, $21, $16, and $9 million over the next four years, respectively. In addition, the horizon value of all remaining cash flows at t..

  What is the payback period of this investment

You are considering making a movie. The movie is expected to cost $100 million upfront and takes a year to make. After that, it is expected to make $83 million in the first year it is released and $5 million for the following 20 years. Your cost of c..

  Draw that persons intertemporal budget constraint

Draw that person's intertemporal budget constraint. -Draw that person's intertemporal budget constraint if the government taxes interest at the rate of 30%.

  What will be the value of her investment

If a business manager deposits $60,000 in a bond fund at the end of each year for twentys years, what will be the value of her investment?  What would the outcome be in each case if the deposits were made at the beginning of each year?

  Develop a simple backbone and determine the total cost

You have been hired by a small company to install a backbone to connect four 100base-T Ethernet LANs (each using one 24-port hub) and to provide a connection to the Internet. - Develop a simple backbone and determine the total cost.

  What is the average accounting return

A project has an initial cost of $62,000 and a four year life. The company uses straight line depreciation to a book value of zero over the life of the project. The projected net income from the project is $2,400, $4,100, $4,700, and $4,500 a year fo..

  Depreciation expenses under the high-capacity alternative

Sechssonic has found that it is indifferent between purchasing a high-capacity vacuum sealing machine or a lower capacity machine as long as sales are 200 units per month. If the firm bases its decisions on the accounting operating profit break-even,..

  Depreciated over four years using the straight-line method

Scott Investors, Inc., is considering the purchase of a $362,000 computer with an economic life of four years. The computer will be fully depreciated over four years using the straight-line method. Calculate the NPV of this 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!

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