Question
In: Advanced Math
A stock's price follows a lognormal model. You are given: (i) The current price of the...
A stock's price follows a lognormal model. You are given:
(i) The current price of the stock is 105.
(ii) The probability that the stock's price will be less than 98 at the end of 6 months is 0.3483.
(iii) The probability that the stock's price will be less than 115 at the end of 9 months is 0.7123.
Calculate the expected price of the stock at the end of one year.
Solutions
Colby Messinger answered 2 years agoRelated Solutions
For 3-month 55-strike European options on a stock, you are given: (1) The stock's price follows...
For 3-month 55-strike European options on a stock, you are
given:
(1) The stock's price follows the Black-Scholes framework.
(2) The stock's price is 52.
(3) The stock's volatility is 0.5.
(5)The stock's continuous dividend rate is 3%.
(6) The continuously compounded risk-free interest rate is
7%.
Calculate the premiums for call and put options.
You are given: (i) The current price of a stock is $40. (ii) A one-year forward...
You are given:
(i) The current price of a stock is $40.
(ii) A one-year forward contract on the stock has a price of
$42.
(iii) The stock is expected to pay a dividend of $1 six months
from now and a dividend of $ 1.5 one year from now, immediately
before the one-year forward contract expires.
Find the positive effective annual risk-free interest rate
A stock's current price is $56. Investors require a 14% rate of return and dividends are...
A stock's current price is $56. Investors require a 14% rate of
return and dividends are expected to grow at 2% indefinitely. What
is the expected price of the stock next year?
A firm is not expected to pay a dividend for the next three
years. If the expected share price of the firm in three years is
$54 and investors require a 10% rate of return, what is the
expected share price today?
A stock's current price on the London Stock Exchange is £8. There are two possible prices...
A stock's current price on the London Stock Exchange is £8.
There are two possible prices at the end of the year: £11 or £8. A
call option to buy one share at £10 at the end of the year sells at
£2. Suppose that you are told that a riskless portfolio can be
created by selling 3 call options, buying 2 stocks today and
borrowing £10 today.
(a) What is the risk free interest rate?
(b) Is the interest...
If a stock's dividend increases, what will happen to the stock's price? Will increase, Decrease, or...
If a stock's dividend increases, what will happen to the stock's
price?
Will increase, Decrease, or will not change.
In the Earth’s crust, the concentration of Aluminum follows a lognormal distribution with parameters µln =...
In the Earth’s crust, the concentration of Aluminum follows a
lognormal distribution with parameters µln = 1.505 pph and sln =
1.10 pph. (Note: that pph means part-perhundred.) Despite the
abundance of recycled Aluminum, a geological team from Alcoa is
making a determination of potential mining conditions at possible
locations in Canada. If the smallest 87.7% of the sampled
concentration levels are considered unprofitable for mining
purposes, what is the lowest possible concentration of aluminum
needed in this location before...
(a) why would an investor, concerned primarily with capital gains, estimate a stock's current market price...
(a) why would an investor, concerned primarily with capital
gains, estimate a stock's current market price on the basis of
expected future dividends?
(b) Explain how the earnings and dividens approaches to stock
valuation are equivalent
Question 7 A stock's current price is 209 and it has declared dividends of $0.8/share each to...
Question 7
A stock's current price is 209 and it has
declared dividends of $0.8/share each to be paid
in 38 days, 158 days, and 278 days
from now. You are purchasing a 300-day forward contract.
(Assume that the risk free rate is 2%.)
What is the value of this forward contract 200 days after
initiation, if the stock's price at that time is 205?
You wish to invest and the options are as follows: Stock A Potential price 10.35 Current...
You wish to invest and the options are as
follows:
Stock A
Potential price
10.35
Current Price
5.35
Potential price
5.35
Potential price
3.35
Stock B
Potential price
3.35
Current Price
5.35
Potential price
5.35
Potential price
10.35
Suppose you buy 2 shares of Stock
A.
1. What is your expected return?
2. What is the standard deviation of possible
returns?
You wish to invest and the options are as follows: Stock A Potential price 10.35 Current...
You wish to invest and the options are as
follows:
Stock A
Potential price
10.35
Current Price
5.35
Potential price
5.35
Potential price
3.35
Stock B
Potential price
3.35
Current Price
5.35
Potential price
5.35
Potential price
10.35
Suppose you buy 2 shares of Stock
B.
1. What is your expected return?
2. What is the standard deviation of possible
returns?
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