In: Finance
16. A sociologist surveys 50 randomly selected citizens in each of two countries to compare the mean number of hours of volunteer work done by adults in each. Among the 50 inhabitants of Lilliput, the mean hours of volunteer work per year was 52, with standard deviation 11.8. Among the 50 inhabitants of Blefuscu, the mean number of hours of volunteer work per year was 37, with standard deviation 7.2. Construct the 99% confidence interval for the difference in mean number of hours volunteered by all residents of Lilliput and the mean number of hours volunteered by all residents of Blefuscu. Test, at the 1% level of significance, the claim that the mean number of hours volunteered by all residents of Lilliput is more than ten hours greater than the mean number of hours volunteered by all residents of Blefuscu. Compute the observed significance of the test in part (b).
In: Statistics and Probability
The current price of XYZ stock is $50, and two-month European call options with a strike price of $51 currently sell for $10. As a financial analyst at Merrill Lynch, you are considering two trading strategies regarding stocks and options. Strategy A involves buying 100 shares and Strategy B includes buying 500 call options. Both strategies involve an investment of $5,000.
a. How much is the profit (loss) for strategy A if the stock closes at $65? (sample answer: $100.25 or -$100.25)
b. How much is the profit (loss) for strategy B if the stock closes at $65? (sample answer: $100.25 or -$100.25)
c.How high does the stock price have to rise for strategy B to be more profitable (break-even point)? (sample answer: $100.25)
In: Finance
A price on a non-dividend paying stock is currently £50. Over
each of the next two six-month periods the stock is expected to go
up by 5% or down by 10%. The risk- free interest rate is 3% per
annum with continuous compounding.
(a) What is the value of a one-year European call option with a
strike price of £48?
(b) What is the value of a one-year American call option with a
strike price of £48?
(c) Discuss how your answer to (b) would change if the stock
instead actually did pay cash dividend
Formula, calculation, result, interpretation
In: Accounting
A stock price is currently $50. Over each of the next two three-month periods it is expected to go up by 7% or down by 6%. The risk-free interest rate is 9% per annum with continuous compounding. What is the value of a six-month European call option with a strike price of $49? Equations you may find helpful: p = (e^(rΔt)-d) / (u-d) f = e^(-rΔt) * (fu*p + fd*(1-p)) (required precision 0.01 +/- 0.01)
In: Finance
A stock price is currently $50. Over each of the next two three-month periods it is expected to go up by 5% or down by 6%. The risk-free interest rate is 10% per annum with continuous compounding. What is the value of a six-month European call option with a strike price of $49?
In: Finance
A stock price is currently $50. Over each of the next two three-month periods it is expected to go up by 6% or down by 6%. The risk-free interest rate is 6% per annum with continuous compounding. What is the value of a six-month American put option with a strike price of $53?
In: Finance
A stock price is currently $50. Over each of the next two 3-month periods it is expected to go up by 6% or down by 5%. The risk-free rate is 5% per annum with continuous compounding. What is the value of a six-month European call option with a strike price of $51?
In: Finance
A stock price is currently $50. Over each of the next two 3-month periods it is expected to go up by 6% or down by 5%. The risk-free rate is 5% per annum with continuous compounding. What is the value of a six-month European call option with a strike price of $51? 4
Calculate the price of the put option in problem 3 if it was American.
In: Finance
A sociologist surveys 50 randomly selected citizens in each of two countries to compare the mean number of hours of volunteer work done by adults in each. Among the 50 inhabitants of Lilliput, the mean hours of volunteer work per year was 52, with standard deviation 11.8. Among the 50 inhabitants of Blefuscu, the mean number of hours of volunteer work per year was 37, with standard deviation 7.2.
Construct the 99% confidence interval for the difference in mean number of hours volunteered by all residents of Lilliput and the mean number of hours volunteered by all residents of Blefuscu.
Test, at the 1% level of significance, the claim that the mean number of hours volunteered by all residents of Lilliput is more than ten hours greater than the mean number of hours volunteered by all residents of Blefuscu.
Compute the observed significance of the test in part (b).
In: Math