Question
In: Accounting
You are given: The current stock price is $85. The continuous rate of interest is 5%,...
You are given: The current stock price is $85. The continuous rate of interest is 5%, T=0.5, and the annualized forward premium is 2%.
(a)Find the prepaid forward price.
(b) Tom observes a 6-month forward price of $86.5 in the market. He constructs a portfolio by taking a short position in a forward contract to sell one unit of the stock and buying one unit of the stock. Determine whether Tom’s portfolio is an arbitrage portfolio or not.
Solutions
ekkarill92 answered 1 year agoRelated Solutions
You are given: The current stock price is $85. The continuous rate of interest is 5%,...
You are given: The current stock price is $85. The continuous
rate of interest is 5%, ? = 0.5, and the annualizes forward premium
is 2%.
(a) Find the prepaid forward price.
(b) Tom observes a 6-month forward price of $86.5 in the market.
He constructs a portfolio by taking a short position in a forward
contract to sell one unit of the stock and buying one unit of the
stock. Determine whether Tom’s portfolio is an arbitrage portfolio
or...
The current stock price is $100, the exercise price is $105.1271, the risk-free interest rate is...
The current stock price is $100, the exercise price is
$105.1271, the risk-free interest rate is 5
percent (continuously compounded), the volatility is 30 percent,
and the time to expiration is
one year (365 days).
a. Using the BSM model, compute the call and put prices for a
stock option.
b. In the previous question (3a) you should get the same price
for the call and the put, or very
similar (the differences are due to the rounding of the...
The current price of a stock is $32, and the annual risk-free rate is 5%. A...
The current price of a stock is $32, and the annual risk-free
rate is 5%. A call option with a strike price of $29 and with 1
year until expiration has a current value of $6.40. What is the
value of a put option written on the stock with the same exercise
price and expiration date as the call option? Do not round
intermediate calculations. Round your answer to the nearest
cent.
The current price of a non-dividend paying asset is $65, the riskless interest rate is 5%...
The current price of a non-dividend paying asset is $65, the
riskless interest rate is 5% p.a. continuously compounded, and the
option maturity is five years. What is the lower boundary for the
value of a European vanilla put option on this asset with strike
price of $80?
Are there two lower bounds in this question? Is there any
relevance to the option premium or the payoff?
7. A BCD stock pays an 8% continuous dividend. The current price is $50 and the...
7.
A BCD stock pays an 8% continuous dividend. The current price is
$50 and the continuously compounded risk-free rate is 6%. What is
the price of a prepaid forward contract that expires 1 year from
today? What is the price of a forward contract that expires at the
same time?
Assume that the (annual) interest rate is 2% (continuous compounding), the stock has a volatility of...
Assume that the (annual) interest rate is 2% (continuous
compounding), the stock has a volatility of 60%, there is 1 year
until expiration of the contract, and the underlying stock is
currently traded at $50 in the market. For a call struck at $55,
use the Black-Scholes formula to calculate
(a) the value of the call,
(b) the delta and vega of the call. Based on the delta
and vega calculated above,
(c) approximately how much does the value of...
Current stock price is $50; volatility is 40%; risk free rate is 5%. We have an...
Current stock price is $50; volatility is 40%; risk free rate is
5%. We have an American style put option expires in 6 months. Its
strike price is the maximum price over the life of the option; this
means: its payoff in 6 months is max(0, Smax–
ST). No dividend payments during the 6 months. Use a
2-step CRR binomial model to price this option.
The current price of a non-dividend-paying stock is $50. The risk-free interest rate is 1%. Over...
The current price of a non-dividend-paying stock is $50. The
risk-free interest rate is 1%. Over the next year, it is expected
to rise to $52 or fall to $47. An investor buys a European put
option with a strike price of $53. What is the value of the
option?
Group of answer choices:
A: $0.93
B: $1.93
C: $1.95
D: $2.47
You are given a loan with a nominal interest rate of 5%. You must pay back...
You are given a loan with a nominal interest rate of 5%. You
must pay back this loan one year from now. Over the next year
inflation is at 4%. In real terms what is the effective interest
rate you must pay the loan back at after adjusting for
inflation?
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
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