A friend of yours believes that Apple stock is now overvalued. As a result, she expects...

A friend of yours believes that Apple stock is now overvalued. As a result, she expects that their stock price, now at $115 per share, will not go up any further. She is prepared to back up her conviction by offering you the following bet. If in exactly one year from now Apple stock price is higher than $115/share, she will give you two hundred times the amount of the difference (e.g., suppose the price in one year is $120 per share, you will get $1,000). On the other hand, if the price in one year ends up below $115/share, you will have to give her two hundred times the amount of the difference (e.g., suppose the price in one year is $112 per share, you will have to give her $600). Suppose that the expected return on Apple stock is 10% p.a. Suppose also that the current risk-free rate is 2% p.a. and Apple does not plan to pay dividends in the next year. What is the value of this bet to you? [Hint: Write out the payoff of the bet. What does the payoff look like?]. Please answer this assuming continuous compounding is used.

Expert Solution

Value of option as per risk netural mehtod

The probaility of increasing price is as follows:

The value of bet is as follows:

The vaue of bet is $20.2

jeff jeffy answered 2 years ago

The mother of a close friend of yours is diagnosed with moderate osteoporosis. She is prescribed...

The mother of a close friend of yours is diagnosed with moderate osteoporosis. She is prescribed two hormones, or supplements, or drugs that affect hormones or supplements. 1.) Tell me two possibilities for these medications, and describe how they would help her osteoporosis. Note: I don’t expect you to know any drug names, I’m asking you for what TYPES of drugs. 2.) The mother of your close friend is also told to exercise. Why? Although many types of exercise are...

Suppose that your friend, Angela, holds a single stock, Early Riser Bank (ERB), which she believes...

Suppose that your friend, Angela, holds a single stock, Early Riser Bank (ERB), which she believes faces little risk. Despite the fact that you agree with Angela on the riskiness of the firm, you set out to show her that her risk would be even lower if she was more diversified. As a demonstration exercise, you find the following returns data for Late Riser Bank (LRB). Using the standard deviation of returns, by how much would Angela's risk have been...

A friend of yours attends a different post-secondary institution. She brags that the mean salary of...

A friend of yours attends a different post-secondary institution. She brags that the mean salary of the graduates from her school is over $50000. To test this claim, you collected data from a simple random sample of 32 graduates from her school. Based on the sample data, you found that their mean salary is $51900, with a standard deviation of $5400. Using a 1% significance level, perform a hypothesis test to test your friend’s claim.

A friend of yours says that she has found a lump in her breast. List steps...

A friend of yours says that she has found a lump in her breast. List steps that she would take from initial types of diagnostic testing to surgery to treatment for stage 3 breast cancer. What types of complementary medicine or dietary and lifestyle changes can she make to improve her chances of beating this cancer.

A friend of yours needs bypass surgery. She does not want to get blood from a...

A friend of yours needs bypass surgery. She does not want to get blood from a blood blank and asks you to call up her friends and ask them to donate blood. Her blood type is A- You find out that 4 have blood type O+; 5 have blood type A+; 1 has blood type O-; 1 has blood type B-; 1 has blood type AB- You will ask the friends with blood type/s _______________________ to donate blood. Why? Your...

Mary Poppins, a friend of yours, has recently set up a small business making curtains. She...

Mary Poppins, a friend of yours, has recently set up a small business making curtains. She has supplied you with the following figures, and has asked your advice on a number of issues: Costs per month R Materials 4 100 Labour 5 000 Production overheads 2 000 Selling and distribution overheads 1 000 Administration overheads 500 The above costs are based on producing and selling 1 200 pairs of curtains per month at a selling price of R15 each. 80%...

Mary Poppins, a friend of yours, has recently set up a small business making curtains. She...

Mary Poppins, a friend of yours, has recently set up a small business making curtains. She has supplied you with the following figures, and has asked your advice on a number of issues: Costs per month R Materials 4 100 Labour 5 000 Production overheads 2 000 Selling and distribution overheads 1 000 Administration overheads 500 The above costs are based on producing and selling 1 200 pairs of curtains per month at a selling price of R15 each. 80%...

Mary Poppins, a friend of yours, has recently set up a small business making curtains. She...

Mary Poppins, a friend of yours, has recently set up a small business making curtains. She has supplied you with the following figures, and has asked your advice on a number of issues: Costs per month R Materials 4 100 Labour 5 000 Production overheads 2 000 Selling and distribution overheads 1 000 Administration overheads 500 The above costs are based on producing and selling 1 200 pairs of curtains per month at a selling price of R15 each. 80%...

a) A good friend of yours is asking you whether she/he should undergo psychoanalysis or client-centered...

a) A good friend of yours is asking you whether she/he should undergo psychoanalysis or client-centered therapy. Which factors would you consider before answering her/him, and what would be your final recommendation based on these factors? (write 400 words) b) Do you think humanistic psychology was right in taking the stance that psychology needed a 'third force' to counteract the 'dark side' of psychology (psychoanalysis)? write in-depth c) Why are Bühler, Kohlberg, Erikson, and Gilligan's approaches to development regarded as...

a) A good friend of yours is asking you whether she/he should undergo psychoanalysis or client-centered...

a) A good friend of yours is asking you whether she/he should undergo psychoanalysis or client-centered therapy. Which factors would you consider before answering her/him, and what would be your final recommendation based on these factors? (write 400 words and as you are writing and what would suggest so answer properly) b) Do you think humanistic psychology was right in taking the stance that psychology needed a 'third force' to counteract the 'dark side' of psychology (psychoanalysis)? write in-depth from...

Question

A friend of yours believes that Apple stock is now overvalued. As a result, she expects...

Solutions

Expert Solution

Related Solutions

The mother of a close friend of yours is diagnosed with moderate osteoporosis. She is prescribed...

Suppose that your friend, Angela, holds a single stock, Early Riser Bank (ERB), which she believes...

A friend of yours attends a different post-secondary institution. She brags that the mean salary of...

A friend of yours says that she has found a lump in her breast. List steps...

A friend of yours needs bypass surgery. She does not want to get blood from a...

Mary Poppins, a friend of yours, has recently set up a small business making curtains. She...

Mary Poppins, a friend of yours, has recently set up a small business making curtains. She...

Mary Poppins, a friend of yours, has recently set up a small business making curtains. She...

a) A good friend of yours is asking you whether she/he should undergo psychoanalysis or client-centered...

a) A good friend of yours is asking you whether she/he should undergo psychoanalysis or client-centered...