Question

In: Finance

Suppose Robbins Co. stock is selling for $41 per share. Puts and calls with an exercise...

Suppose Robbins Co. stock is selling for $41 per share. Puts and calls with an exercise price of $50 are available on Robbins. The risk risk-free rate is 8%. The time to maturity of the puts and calls is 3 months (i.e., t = .25). The volatility of Robbins’ stock returns is 30% (i.e., σ = .30). Use the Black-Scholes equation to determine the prices of the call and put.

Solutions

Expert Solution

jeff jeffy answered 6 months ago
Next > < Previous

Related Solutions

One stock is selling for $54 per share. Calls and puts with a $55 strike and...
One stock is selling for $54 per share. Calls and puts with a $55 strike and 360 days until expiration are selling for $8 and $4, respectively. What is the arbitrage profit, if we trade on one call and one put? Suppose a risk-free rate is 10%.
A stock priced at $61 has three-month calls and puts with an exercise price of $55...
A stock priced at $61 has three-month calls and puts with an exercise price of $55 available. The calls have a premium of $4.94, and the puts cost $1.48. The risk-free rate is 3.7%. If the put options are mispriced, what is the profit per option assuming no transaction costs?
Suppose that Papa Bell, Inc.'s, equity is currently selling for $41 per share, with 3.6 million...
Suppose that Papa Bell, Inc.'s, equity is currently selling for $41 per share, with 3.6 million shares outstanding. The firm also has 8,000 bonds outstanding, which are selling at 95% of par. Assume Papa Bell was considering an active change to its capital structure so as to have a D/E of 0.5. Which type of security (stocks or bonds) would the firm need to sell to accomplish this? How much would it have to sell? (Enter your answer in dollars...
The stock of Nogro Corporation is currently selling for $20 per share. Earnings per share in...
The stock of Nogro Corporation is currently selling for $20 per share. Earnings per share in the coming year are expected to be $3.00. The company has a policy of paying out 50% of its earnings each year in dividends. The rest is retained and invested in projects that earn an 18% rate of return per year. This situation is expected to continue indefinitely. a. Assuming the current market price of the stock reflects its intrinsic value as computed using...
The stock of Nogro Corporation is currently selling for $15 per share. Earnings per share in...
The stock of Nogro Corporation is currently selling for $15 per share. Earnings per share in the coming year are expected to be $3. The company has a policy of paying out 40% of its earnings each year in dividends. The rest is retained and invested in projects that earn a 20% rate of return per year. This situation is expected to continue indefinitely. a. Assuming the current market price of the stock reflects its intrinsic value as computed using...
A stock is selling today for $50 per share. At the end of the year, it...
A stock is selling today for $50 per share. At the end of the year, it pays a dividend of $3 per share and sells for $56. Required: a. What is the total rate of return on the stock? b. What are the dividend yield and percentage capital gain? c. Now suppose the year-end stock price after the dividend is paid is $48. What are the dividend yield and percentage capital gain in this case?
A stock is selling today for $50 per share. At the end of the year, it...
A stock is selling today for $50 per share. At the end of the year, it pays a dividend of $3 per share and sells for $58. a. What is the total rate of return on the stock? (Enter your answer as a whole percent.) b. What are the dividend yield and percentage capital gain? (Enter your answers as a whole percent.) c. Now suppose the year-end stock price after the dividend is paid is $42. What are the dividend...
Suppose that LMN stock currently is selling at $79 per share. You buy 500 shares using...
Suppose that LMN stock currently is selling at $79 per share. You buy 500 shares using $30,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 5%. a. What is the percentage increase in the net worth of your brokerage account if the price of LMN immediately changes to: (i) $87.20; (ii) $79; (iii) $70.80? What is the relationship between your percentage return and the percentage change in...
Suppose that LMN stock currently is selling at $48 per share. You buy 400 shares using...
Suppose that LMN stock currently is selling at $48 per share. You buy 400 shares using $14,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 5%. a. What is the percentage increase in the net worth of your brokerage account if the price of LMN immediately changes to: (i) $51.36; (ii) $48; (iii) $44.64? What is the relationship between your percentage return and the percentage change in...
Suppose that LMN stock currently is selling at $78 per share. You buy 250 shares using...
Suppose that LMN stock currently is selling at $78 per share. You buy 250 shares using $10,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 5%. a. What is the percentage increase in the net worth of your brokerage account if the price of LMN immediately changes to: (i) $84.24; (ii) $78; (iii) $71.76? What is the relationship between your percentage return and the percentage change in...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT