6. One of the assumption we have made is that the risk-free interest rate is constant....
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%...
2. A stock has two possible ending prices six months from now: $120 or $90. A call option written on this stock has an exercise price of $110. The option expires in six months. The risk-free rate is 6% per year. The current price of the stock is $100. a. Show how you can create a hedge portfolio using a combination of the stock and call option on this stock. b. What is the equilibrium price of the call option...
NEED HELP WITH ALL QUESTIONS PLEASE!!!!! 14. Consider a one period binomial model. The initial stock price is $30. Over the next 3 months, the stock price could either go up to $36 (u = 1.2) or go down to $24 (d = 0.8). The continuously compounded interest rate is 6% per annum. Use this information to answer the remaining questions in this assignment. Consider a call option whose strike price is $32. How many shares should be bought or...
Suppose we have the following information about two stocks: Beta Expected Return 11% 6% 1.6 Stock 1 Stock 2 0.5 If the CAPM holds, what is the risk-free interest rate, the expected stock market return, and the market risk premium? (hint: Use CAPM equation for each separately; plug in known values and see if you can find unknown parameters through the two equations. Question #5 (30 points) Download monthly price data for Cigna (CI) and Amazon.com (MNZ) for the period...
Billy Thornton borrowed $20,000 at a rate of 7.25%, simple interest, with interest paid at the end of each month. The bank uses a 360-day year. How much interest would Billy have to pay in a 30-day month? a. $139.88 b. $133.22 c. $120.83 d. $126.88 e. $146.87 1 points QUESTION 9 Suppose you borrowed $14,000 at a rate of 10.0% and must repay it in 5 equal installments at the end of each of the next 5 years. How...