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Binomial Model: price a European call option with exercise price of $84.

1) Consider a stock currently selling for $80. It can go up or down by 15% per period. The risk-free rate is 6%. Use a one period binomial model. You want to price a European call option with exercise price of $84. a. Determine the two possible stock prices at expiration. b. Construct two portfolios with equivalent payoffs. On

Decision Theory- Manufacturing plant locations and level of technology for each

What factors should be considered besides cost benefit analysis for management to make a decision to choose a higher technology option in one location or lower technology option in several locations for their cosmetics manufacturing plants in Europe. Why do world class organizations not always select the higher technology option

Trading Issues and Basics of Forward and Futures Contracts

5 Paragraphs: Because of new information that has been gathered on derivatives, it has become apparent that these instruments are capable of providing a good hedge mechanism for various currency transactions in which the firm will engage. Because of the potential importance of derivatives, the treasurer would like more informat

Expected returns and standard deviations for stocks

Consider two stocks, A and B, with the following expected returns and standard deviations. Expected Standard Return Deviation A 8.00% 20.00% B 12.00% 30.00% The correlation coefficient between the returns of A and B is 0.3. Short selling is allowed. a. Consider a portfolio, P, that comprises 45% invested in s

Amortized Bond Premium and Paid in Capital in Excess of Par

23. Jenks Co.has $2,500,000 of 8% convertible bonds outstanding. Each $1,000 bond is convertible into 30 shares of $30 par value common stock. The bonds pay interest on January 31 and July 31. On July 31, 2007, the holders of $800,000 bonds exercised the conversion privilege. On that date the market price of the bonds was 105 an

Futures and Options: Assuming that the futures price of a six-month contract on commodity Z is $48, what must be the price of a put with an exercise price of $50 in order to avoid arbitrage across markets? What is the "no arbitrage" price differential that should exist between the put and call options having an exercise price of $40?

Consider commodity Z, which has both exchange-traded futures and option contracts associated with it. As you look in today's paper , you find the following put and call prices for options that expires exactly six month from now: Exercise price Put price Call Price 40 0.59 8.

Calculate the expiration date payoffs for option positions

The common stock of Company XYZ is currently trading at a price of $42.00 both a put and a call option are available for XYZ stock, each having an exercise price of $40 and an expiration date in exactly six months. The current market prices for the out and call are $1.45 and a$3.90, respectively. The risk-free holding pe

Put call parity, implied volatility

AD 13: The Dow Jones Industrial Average on August 15, 2008 was 11,660 and the price of the December 117 call was $3.50. Assume the risk-free rate is 4.2%, the dividend yield is 2% and the option expires on December 25 (options markets are closed the day after Christmas). Q1: Use Derivagem to calculate the implied volatility o

Intrinsic value of the warrant

The Whipple Corporation currently has common stock selling for $25 per share on the National Stock Exchange. Warrants are also available entitling the warrant holder the option of purchasing 1 share of common stock for every 3 warrants held. The exercise price is $19 per share. The warrants are currently selling for $4 per warra

Third Party Conflict Resolution Paper - "Pacific Oil Company"

I have the following task, and I need some help getting started: Write a 2000 word essay about the attachment in which you analyze the possible intervention strategies. Apply what you believe to be the best strategy and explain how it should resolve the conflict. In case your best strategy does not work, or is rejected, develop

Mechanics of Option Markets

AD 8: The price of a stock is $50. The price of a one-year European put option on the stock with a strike price of 42 is quoted as $8 and the price of a one-year European call option on the stock with a strike price of 58 is quoted as $6. Q1: Suppose that an investor buys 100 shares (one round lot), shorts 1 call option contr

What is the arbitrage opportunity with this European call option and put option?

AD 9: A European call option and put option on a stock both have a strike price of $30 and an expiration date in six months. Both sell for $5. The risk-free interest rate is 7% per annum, the current stock price is $27.80 and a $1 dividend is expected in 2 months. Identify the arbitrage opportunity open to the trader. Q1: To

Options: strike price, intrinsic value, speculative premium, futres

2. Look at the option quotes in Table 15-2. (see attached) a. What is the closing price of the common stock of SINGLE Systems? b. What is the highest strike price listed? c. What is the price of a December 20 call option? d. What is the price of a January 22.50 put option? 3. Assume a stock is selling for $66.75 with opti

The Rondo Company: Funding a special project

Need to make a recommendation based on this info. How do I go about obtaining this to do so? Assess the financing proposals in terms of attractiveness in cost and associated risk. Please evaluate the following financing alternatives: commercial bank loan, mortgage bond, common stock, preferred stock with warrants and convert

Debt Vs. Equity Financing

1. What is debt financing? Give at least two examples. 2. What is equity financing? Give at least two examples. 3. Which alternative capital structure is more advantageous? Why?

Liabilities, Bonds, and Liquidity and Solvency

1. Georgia Lazenby believes a current liability is a debt that can be expected to be paid in one year. Is Georgia correct? Explain. 2 a. What are long-term liabilities? Give two examples. b. What is a bond? 3. Contrast these types of bonds: a. Secured and unsecured. b. Convertible and callable. 4. Valenti

Current Liability, Equity Accounts, Bonds, and Corporations

1. What is a current liability? What is a non-current liability? What is the difference between the two types of liabilities? In which financial statement would you find these liabilities? 2. What are the types of equity accounts? What is the role of equity accounts in raising capital? 3. What are the several different ty

Charitable Donations with Stocks

On December 5th, 2006, Rebecca Ward, a single taxpayer, comes to you for tax advice. At the end of every year she donates $3800 to charity. She has no other itemized deductions. This year, she plans to make her charitable donations with stock. She presents you with the following information relating to her stock investment: C

Option Puts for File Co: put-call parity

The common stock of File Co. is selling at $90. A 26-week call option written on file's stock is selling for $8. The call's exercise price is $100. The risk-free rate is 10% per year. 1. Suppose that puts on File Co stock are not traded, but you want to buy one. How would you do it? 2. Suppose that puts are traded. What s

Assume that the U.S. interest rate fall relative too British interest rate.

4-3; Interest rate effects on Exchange Rates. Assume that the U.S. interest rate fall relative too British interest rate. Other things being equal, how should this effect the (a) U.S. demand for British pounds (b) supply of pounds for sale, and (c) equilibrium value of the pound? 4-8; Factors Affecting Exchange Rates. What f

Various Accounting Problems: Bonds, Liabilites, and Dividends

Please see the attached file. 1. Georgia Lazenby believes a current liability is a debt that can be expected to be paid in one year. Is Georgia correct? Explain. 2. (a) What are long-term Liabilities? Give two examples. (b) What is a bond? 3. Contrast these types of bonds: (a) Secured and unsecured. (b) Convertible an