Question

In: Finance

Moutainbrook Company stock is is currently trading at $44 per share. The stock pays no dividends....

Moutainbrook Company stock is is currently trading at $44 per share. The stock pays no dividends. The standard deviation of the returns on the stock is 55%. The continuously compounded interest rate is 6% per year. A three-year European call option on Mountainbrook stock has a strike price of $50 per share. Using the Black-Scholes-Merton model, find the premium per share to four decimal places.

Solutions

Expert Solution

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

Suppose Amazon stock is trading for $ 535 per​ share, and Amazon pays no dividends. a....
Suppose Amazon stock is trading for $ 535 per​ share, and Amazon pays no dividends. a. What is the maximum possible price of a call option on​ Amazon? b. What is the maximum possible price of a put option on Amazon with a strike price of $ 590​? c. What is the minimum possible value of a call option on Amazon stock with a strike price of $ 500​? d. What is the minimum possible value of an American put...
A company is currently trading at $100 per share. After examining the stock, determined that in...
A company is currently trading at $100 per share. After examining the stock, determined that in each 3 month period, its price will either increase to 25% or decrease by 20%. The interest rare is 3% every 3 months. a) A six month Europrean call option on this company has an exercise price of $90. What is the value of this call option? b) What is the value of a six month European put option on this company with an...
ZAZ stock is currently trading at $163 per share. A dividend of $1.47 per share is...
ZAZ stock is currently trading at $163 per share. A dividend of $1.47 per share is expected to be paid on the stock in two months. A three month European put option with $165 strike on ZAZ is trading at $1 in the options market. 1. Does an arbitrage opportunity exist regarding securities markets for T-Bills, ZAZ stock and this put option? Explain 2. Completely specify a set of trades now that exploit the arbitrage opportunity. 3. Compute the profit...
(a)       Consider a stock that pays annual dividends. It just paid $4.50 dividends per share, and...
(a)       Consider a stock that pays annual dividends. It just paid $4.50 dividends per share, and the next dividend will be paid in 1 year. The dividends are expected to remain constant at $4.50 per share for the next 10 years, after which the dividends are expected to decrease at a rate of 0.5% per year. The annual cost-of-capital is 15.50%. Find the fair value of the stock today. (b)       Consider the same stock as described in part (a), except...
(a) Consider a stock that pays annual dividends. It just paid $4.50 dividends per share, and...
(a) Consider a stock that pays annual dividends. It just paid $4.50 dividends per share, and the next dividend will be paid in 1 year. The dividends are expected to remain constant at $4.50 per share for the next 10 years, after which the dividends are expected to decrease at a rate of 0.5% per year. The annual cost-of-capital is 15.50%. Find the fair value of the stock today. (b) Consider the same stock as described in part (a), except...
(a)       Consider a stock that pays annual dividends. It just paid $4.50 dividends per share, and...
(a)       Consider a stock that pays annual dividends. It just paid $4.50 dividends per share, and the next dividend will be paid in 1 year. The dividends are expected to remain constant at $4.50 per share for the next 10 years, after which the dividends are expected to decrease at a rate of 0.5% per year. The annual cost-of-capital is 15.50%. Find the fair value of the stock today. (b)       Consider the same stock as described in part (a), except...
Assume a stock currently pays no dividends today, but expected to begin paying dividends $6 per...
Assume a stock currently pays no dividends today, but expected to begin paying dividends $6 per share in 4 years. The dividends are expected to have a constant growth rate of 6% at that time and firm has a cost of equity of 11.4%. Using the dividend discount model, what do you estimate the share price should be?  
Assume a stock currently pays no dividends today, but expected to begin paying dividends $8 per...
Assume a stock currently pays no dividends today, but expected to begin paying dividends $8 per share in 3 years. The dividends are expected to have a constant growth rate of 7% at that time and firm has a cost of equity of 11.6%. Using the dividend discount model, what do you estimate the share price should be?
XYZ company has 10,000 shares of stock currently trading at $10 per share. They have a...
XYZ company has 10,000 shares of stock currently trading at $10 per share. They have a beta of 1, expected market return of 10% and a 3% risk free rate. XYZ also has 50 shares of debt outstanding currently trading at $1000 per share. Their bonds have semiannual bonds with a $1,000 par value, 5% coupon rate, and 10 years to maturity. The firm's marginal tax rate is 22 percent. Calculate the weighted average cost of capital (WACC). ENTER YOUR...
Suppose the stock of Jagdambay Exports Corporation is currently trading at $20 per share. a)        ...
Suppose the stock of Jagdambay Exports Corporation is currently trading at $20 per share. a)         If company issued a 20% stock dividend, what will its new price be? b)        If company does a 3:2 stock split, what will its new share price be? c)         If company does a 1:3 reverse split, what will its new share price be?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT