E(V(1)) = | e_______ | ||
(1+&) | |||
Where e is the money received at the end of year one and & is the rate of discount.
6. Suppose that a continuous dividend with rate o is attached to the stock. That is,...
3. (10 pts) Suppose the stock S pays dividend ö at time to with to E (0, T). Let CA and PA be the prices of American call and put options, each with the same exercise price X and exercise time T. Use No-arbitrage arguments to prove that: S(0) - der to - X, CA PA where we assume the continuous interest rate is the constant r
3. Suppose that the risk-free interest rate is 6% per annum dividend yield on a stock index is 4% per annum. The index is standing at 400, and the futures price for a contract deliverable in four months is 405. What arbitroge opportunities does this create? with continuous compounding and that the
Problem1 A stock is currently trading at S $40, during next 6 months stock price will increase to $44 or decrease to $32-6-month risk-free rate is rf-2%. a. [4pts) What positions in stock and T-bills will you put to replicate the pay off of a European call option with K = $38 and maturing in 6 months. b. 1pt What is the value of this European call option? Problem 2 Suppose that stock price will increase 5% and decrease 5%...
6 that is continuous on the entire Note that F(x) = J-6 V44 +6 dt. So assume f(e) = V 24 + 6 real line. Use the Second Fundamental Theorem of Calculus, which states that, if f is continuous on an open interval I containing a, then for every x in the interval, d f(x). f(t) dt = dx Step 2 In this problem, F(x) = Live* +6 dt. Therefore, F'(x) = f(t) dt = f(x) = V Submit Skip...
Consider continuous-time model and five-month European call option on a non- dividend stock which a stock price of $200 and premium (c=40) when the strike price is $190, the risk-free rate per annum of a year is 3%. Find implied volatility. The implied volatility must be calculated using an iterative proce
Consider a continuous time system given by the differential equation j(t) + 4y(t) + 4y(t) = 4ü(t) + 2i(t) + 4v(t). Suppose that the input v(t) is given by y(t) = e-2 u(t)where u(t)equals the step signal. Determine the corresponding response y(t), showing all your workings.
Consider the following three stocks: a. Stock A is expected to provide a dividend of $11.90 a share forever. b. Stock B is expected to pay a dividend of $6.90 next year. Thereafter, dividend growth is expected to be 2.00% a year forever. c. Stock C is expected to pay a dividend of $4.10 next year Thereafter dividend growth is expected to be 18 00% a year for five years (ie, years 2 through 6 and zero thereafter a-1. If...
Suppose that the risk-free interest rate is 8% per annum with continuous compounding and that the dividend yield on a stock index is 3% per annum with continuous compounding. The index is standing at 350 and the futures price for a contract deliverable in 6months is 360. #1) What should be the theoretical futures price for the stock index? #2) What arbitrage opportunities does this create? #1) theoretical futures price = $366.38 #1) theoretical futures price = $358.86 #1) theoretical...
Spot price 50 Strike price 50 Effective annual risk-free rate 1% Continuous Dividend Yield 0 Time to maturity 1 year European Call Option Premium 5.2 u 1.2 d 0.8 (a) Suppose you observe a call price of $5.50. How can you arbitrage? A. Long call, long stock and borrow money. B. Short call, long stock and borrow money. C. Long call, short stock and lend money. D. Short call, short stock and lend money. (b) What is the present value...
Presently. Stock A pays a dividend of $2.00 a share, and you expect the dividend to grow rapidly for the next four years at 20 percent. Thus the dividend payments will be Year Dividend $1.20 1 2 1.44 1.73 2.07 4 After this initial period of super growth, the rate of increase in the dividend should decline to 8 percent. If you want to earn 12 percent on investments in common stock. what is the maximum you should pay for...