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2. (Options) Consider a world with two stocks (S, and S) and two possible states. The...
QUESTION 40 There are two states of the world. In state 1, you get $100. In...
QUESTION 40 There are two states of the world. In state 1, you get $100. In state 2, you get $50. Assuming rationality, and the expected return is $87.50, what is the probability state 1 occurs? 0.25 O 0.5 0.75 0 1 QUESTION 41 What is the value of information in a world of uncertainty? The decrease in the certainty equivalent The gain in profit from selling more units The increase in expected utility from a changed decision based on...
The current price of a stock is $31.50 per share, and six-month European call options on...
The current price of a stock is $31.50 per share, and six-month European call options on the stock with a strike price of $32.50 are currently trading at $3.60. An investor, who has $10,000 of capital to invest, believes that the price of the stock will increase by 20% over the next six months. The investor is trying to decide between two strategies - buying shares or buying call options. What return will each strategy produce after six months, if...
Suppose that there are two possible states of the economy, A and B, in year T....
Suppose that there are two possible states of the economy, A and B, in year T. A stock's price in year T will depend on the economic state as in the table below. A risk-free bond currently sells for $8 and it will pay $10 in year T in every state. State A State B stock $150 $80 bond $10 $10 In addition, we also see a year-T European call option on the stock above. The call has the strike...
Suppose that there are two possible states of the economy, A and B, in year T....
Suppose that there are two possible states of the economy, A and B, in year T. A stock’s price in year T will depend on the economic state as in the table below. A risk-free bond currently sells for $8 and it will pay $10 in year T in every state. state a state b stock $150 $80 bond $10 $10 In addition, we also see a year-T European call option on the stock above. The call has the strike...
please type your answer 4. Consider a portfolio consisting of 6 stocks and 10 put options...
please type your answer
4. Consider a portfolio consisting of 6 stocks and 10 put options on the stocks. The current stock price is So = 100 and the stike price of the options is X = 100. The stock price can take on only two values at maturity T given by Su = 120 and Sd = 90. The risk-free rate is given by 5%. (a) What is the payoff at maturity of the portfolio? (b) Calculate the "Delta"...
Consider an economy with two dates (t=0,1) and at t=1 there are three states. The following...
Consider an economy with two dates (t=0,1) and at t=1 there are three states. The following three stocks are traded: X1=(10,0,30) X2=(0,20,40) X3=(20,20,0) The t=0 prices of these stocks are given as follows (P1, P2, P3)=(12, 14, 8). (a) Is there an arbitrage? Suppose an investment firm sells options. (b) What is the t=0 price (premium) of a call option on stock 2 with exercise price E=10? (c) What is the t=0 price (premium) of a put option on stock...
There are two stocks in a portfolio and two possible states of economy that may occur....
There are two stocks in a portfolio and two possible states of economy that may occur. The relevant information is summarized as follows (the given information is the same as in the previous question): Stock return if a certain state of economy occurs State of Economy Probability Stock 1 Stock 2 Good 0.50 8% 15% Bad 0.50 4% -7% Initial Investments $6,000 $4,000 What is the expected return on this portfolio? OA) 10.4% O B) 3.6 C) 5.2% OD 8.8
2. The returns of two stocks and one bond in 4 possible states of economies are...
2. The returns of two stocks and one bond in 4 possible states of economies are given below. Probability Stock A Stock B Bond C Recession 10% -25% -10% 5% Normal-bad 30% -5% 1% 5% Normal-good 40% 10% 6% 3% Boom 20% 30% 9% 1% (1) What is expected return and the standard deviation of the three assets? (2) What are the pairwise correlations among the 3 assets (i.e., PA " A .- 400 mt nl A 20% stock Band...
Consider a molecule that can be in one of two different conformation states A or B....
Consider a molecule that can be in one of two different conformation states A or B. These states are two different arrangements of the atoms: e.g., in state B, one part of the molecule could be rotated about a bond with respect to the rest of the molecule. Assume the energies of states A and B are 4e-21 and 8e-21 J respectively. At room temperature, T = 298 K, what is the relative likelihood of the molecule being found in...
A) Consider the following two, completely separate economies. The expected return and volatility of all stocks...
A) Consider the following two, completely separate economies. The expected return and volatility of all stocks in both economies is the same. In the first economy, all stocks move together-in good times all prices rise together and in bad times, they all fall together. In the second economy, stock returns are independent-one stock increasing in price has no effect on the prices of other stocks. Assuming you are risk-averse and you could choose one of the two economies in which...
QUESTION 40 There are two states of the world. In state 1, you get $100. In state 2, you get $50. Assuming rationality, and the expected return is $87.50, what is the probability state 1 occurs? 0.25 O 0.5 0.75 0 1 QUESTION 41 What is the value of information in a world of uncertainty? The decrease in the certainty equivalent The gain in profit from selling more units The increase in expected utility from a changed decision based on...
The current price of a stock is $31.50 per share, and six-month European call options on the stock with a strike price of $32.50 are currently trading at $3.60. An investor, who has $10,000 of capital to invest, believes that the price of the stock will increase by 20% over the next six months. The investor is trying to decide between two strategies - buying shares or buying call options. What return will each strategy produce after six months, if...
please type your answer
4. Consider a portfolio consisting of 6 stocks and 10 put options on the stocks. The current stock price is So = 100 and the stike price of the options is X = 100. The stock price can take on only two values at maturity T given by Su = 120 and Sd = 90. The risk-free rate is given by 5%. (a) What is the payoff at maturity of the portfolio? (b) Calculate the "Delta"...
Consider an economy with two dates (t=0,1) and at t=1 there are three states. The following three stocks are traded: X1=(10,0,30) X2=(0,20,40) X3=(20,20,0) The t=0 prices of these stocks are given as follows (P1, P2, P3)=(12, 14, 8). (a) Is there an arbitrage? Suppose an investment firm sells options. (b) What is the t=0 price (premium) of a call option on stock 2 with exercise price E=10? (c) What is the t=0 price (premium) of a put option on stock...
There are two stocks in a portfolio and two possible states of economy that may occur. The relevant information is summarized as follows (the given information is the same as in the previous question): Stock return if a certain state of economy occurs State of Economy Probability Stock 1 Stock 2 Good 0.50 8% 15% Bad 0.50 4% -7% Initial Investments $6,000 $4,000 What is the expected return on this portfolio? OA) 10.4% O B) 3.6 C) 5.2% OD 8.8
2. The returns of two stocks and one bond in 4 possible states of economies are given below. Probability Stock A Stock B Bond C Recession 10% -25% -10% 5% Normal-bad 30% -5% 1% 5% Normal-good 40% 10% 6% 3% Boom 20% 30% 9% 1% (1) What is expected return and the standard deviation of the three assets? (2) What are the pairwise correlations among the 3 assets (i.e., PA " A .- 400 mt nl A 20% stock Band...
Consider a molecule that can be in one of two different conformation states A or B. These states are two different arrangements of the atoms: e.g., in state B, one part of the molecule could be rotated about a bond with respect to the rest of the molecule. Assume the energies of states A and B are 4e-21 and 8e-21 J respectively. At room temperature, T = 298 K, what is the relative likelihood of the molecule being found in...
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