Question

In: Finance

Suppose that a stock price is $10.00 per share at current time and at the end...

Suppose that a stock price is $10.00 per share at current time and at the end of three months the stock price may either move up to $11.00 per share or down to $9.00 per share. Consider a European call option which allows you to buy the stocks at $10.50 per share at the end of three months. The risk free rate is 12% per year.

Find the fair price for the option.

Solutions

Expert Solution


Related Solutions

The current price of Parador Industries stock is $44 per share. Current sales per share are...
The current price of Parador Industries stock is $44 per share. Current sales per share are $21.35, the sales growth rate is 4 percent, and Parador does not pay a dividend. The expected return on Parador stock is 13 percent. a. Calculate the sales per share one year ahead. (Round your answer to 2 decimal places.) b. Calculate the P/S ratio one year ahead. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Suppose that the current stock price of Land's Outdoors is $55 per share. Over the next...
Suppose that the current stock price of Land's Outdoors is $55 per share. Over the next year you expect the following: State of Land's Probability Dividend @ year-end Stock Price @ year-end Expansion 25% $3 $70 Neutral 40% $1 $60 Contraction 35% $0 $45 What is the expected return on Land's over the next year? What is the expected risk, as measured by standard deviation, of an investment in Land's over the next year? (Do not round intermediate calculations. Round...
Suppose you own stock in a company. The current price per share is $25. Another company...
Suppose you own stock in a company. The current price per share is $25. Another company has just announced that it wants to buy your company and will pay $35 per share to acquire all the outstanding stock. Your company’s management immediately begins fighting off this hostile bid. Is management acting in the shareholders’ best interests? Why or why not?
Suppose you own stock at AC Milan Berhad. The current price per share is RM30. Another...
Suppose you own stock at AC Milan Berhad. The current price per share is RM30. Another company has just announced that it wants to buy your company and will pay RM40 per share to acquire all the outstanding stock. Your company’s management immediately begins fighting off this hostile bid. Is management acting in the shareholders’best interest? Elaborate on your opinion on this matter. Profitability based on short-term goals could be at the expense of long term sustainability of an organization,...
The current stock price for a company is $42 per share, and there are 6 million...
The current stock price for a company is $42 per share, and there are 6 million shares outstanding. This firm also has 230,000 bonds outstanding, which pay interest semiannually. If these bonds have a coupon interest rate of 9%, 10 years to maturity, a face value of $1,000, and an annual yield to maturity of 7.8%, what is the percent market value of debt for this firm? (Answer to the nearest hundredth of a percent, but do not use a...
The current stock price for a company is $48 per share, and there are 5 million...
The current stock price for a company is $48 per share, and there are 5 million shares outstanding. The beta for this firms stock is 1.2, the risk-free rate is 4.2, and the expected market risk premium is 6.4%. This firm also has 120,000 bonds outstanding, which pay interest semiannually. These bonds have a coupon interest rate of 6%, 10 years to maturity, a face value of $1,000, and an annual yield to maturity of 8.1%. If the corporate tax...
The current stock price for a company is $47 per share, and there are 8 million...
The current stock price for a company is $47 per share, and there are 8 million shares outstanding. The beta for this firms stock is 1, the risk-free rate is 4.5, and the expected market risk premium is 5.9%. This firm also has 250,000 bonds outstanding, which pay interest semiannually. These bonds have a coupon interest rate of 9%, 23 years to maturity, a face value of $1,000, and an annual yield to maturity of 8.2%. If the corporate tax...
The current stock price for a company is $43 per share, and there are 7 million...
The current stock price for a company is $43 per share, and there are 7 million shares outstanding. The beta for this firms stock is 1.1, the risk-free rate is 4.8, and the expected market risk premium is 6.5%. This firm also has 290,000 bonds outstanding, which pay interest semiannually. These bonds have a coupon interest rate of 9%, 18 years to maturity, a face value of $1,000, and an annual yield to maturity of 8.3%. If the corporate tax...
The current stock price for a company is $37 per share, and there are 4 million...
The current stock price for a company is $37 per share, and there are 4 million shares outstanding. This firm also has 280,000 bonds outstanding, which pay interest semiannually. If these bonds have a coupon interest rate of 8%, 30 years to maturity, a face value of $1,000, and an annual yield to maturity of 8.4%, what is the percent market value of debt for this firm? (Answer to the nearest hundredth of a percent, but do not use a...
The current stock price for a company is $38 per share, and there are 8 million...
The current stock price for a company is $38 per share, and there are 8 million shares outstanding. The beta for this firms stock is 0.8, the risk-free rate is 4.3, and the expected market risk premium is 6.2%. This firm also has 230,000 bonds outstanding, which pay interest semiannually. These bonds have a coupon interest rate of 7%, 28 years to maturity, a face value of $1,000, and an annual yield to maturity of 8%. If the corporate tax...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT