If the volatility of a non-dividend-paying stock is 20% per year and a risk-free rate is 5% per year, which of the following is the approximate value for p for a tree with a three- month time step? 0.62 0.58 None of these 0.50 0.54
Q: Please help me with this question thanks sir no problem .Assume that Kendal Corp. has an outstanding…
A: Yield to Maturity is also known as YTM. It is a capital budgeting techniques which help in decision…
Q: You owe $2,000 on a credit card that charges 20% interest. You have $2,200 in your savings account…
A: Debt on Credit card = $2,000 Bank balance on Savings account = $2,200 SB Interest rate = 1.69%…
Q: Data table Operating Income New York $ Chicago Assets Current 2,150,000 $15,500,000 $ 2,550,000…
A: WACC represents the firm's average cost of raising funds from investors. WACC also represents the…
Q: n investor knows that she will need £20,000 in ten years and looks at possible savings plans. The…
A: More is the compounding than more is the effective interest rate and more is the future value of the…
Q: ou win the Console Lottery. They payoff is a growing “console” bond. That means that the bond will…
A: We can determine the PV of the console bond using the PV of perpetual growth formula as below: PV =…
Q: Determining the Cost of Insurance. Suppose you are 45 and have a $50,000 face amount, 15-year,…
A: Face Value = $50,000 Annual Premium = $1,000 Cash value of the policy = $12,000 Time period = 15…
Q: 2. Margetis Inc. carries an average inventory of $750,000. Its annual sales are $10 million, its…
A: Cash conversion cycle (CCC) is the number of days a firm takes to purchase inventory and convert it…
Q: Gil wants to have $8,750 in 10 years. Use the present value formula to calculate how much he should…
A: Compound = semiannually = 2 Future value = fv = $8750 Time = t = 10 * 2 = 20 Interest rate = r = 4 /…
Q: Which would increase a firm's return on equity? A. Issuance of 12% bonds and investing the proceeds…
A: Return on Equity = Return on income can be calculated by dividing the company net income by the…
Q: There were no changes in the shares outstanding during 2021. The rate of cash flow to total…
A: To determine the rate of cash flow to total liabilities, we first must determine the total…
Q: (a) Mr Adani invests in two risky securities with the following details: Security 1: r₁=0.16;…
A: I ) 40% in Security 1 and 60% in Security 2: Return Return of Portfolio = Return from Security 1 *…
Q: A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a…
A: An optimal portfolio refers to a portfolio of investments that offers the highest expected return…
Q: Finance Find the savings plan balance after 18 months with an APR of 6% and monthly payments of…
A: As per the given information: Monthly payments - $800APR - 6%Period - 18 months To determine:…
Q: ne that you are a 25-year old finance professional. You wanted to buy the latest model of your…
A: Buying any equipment involves cost and money is borrowed and so there decision making involved in…
Q: Which has the greater future value after 5 years, $1000 invested at 8% with annual compounding or…
A: Here, Part A. Particulars Option 1 Option 2 Amount invested (PV) $1,000.00 $1,000.00…
Q: . Calculate the payback period. 2. Calculate the accounting (simple) rate of return. 3. Calculate…
A: First, we need to build the cash flow over the years using the formula below:Year 0 = Initial…
Q: Question 13 RWJ 13-6 TF In the Capital Asset Pricing Model, the slope of the SML is also the…
A: According to bartleby guidelines, if multiple questions are asked, then 1st question needs to be…
Q: Why is credit risk management important and what are the features of a loan or debt instrument it…
A: Credit risk management is crucial because it enables financial institutions to recognise and control…
Q: Jiminy's Cricket Farm issued a 30-year, 5.6 percent semiannual bond 2 years ago. The bond currently…
A: Book value is the value represented on the balance sheet of the company whereas the market value is…
Q: 4. A warehouse is currently sitting empty, but can be rented out to a third pe $100,000 a year. A…
A: After tax salvage value is calculated as shown below. After tax salvage value=Market value-Tax…
Q: Your portfolio allocates equal funds to DW Co. and Woodpecker, Inc. DW Co. stock has an annual…
A: Here,
Q: The value in pounds of a fund at time t = 0 is V0 = 50, 000. After one year (at t = 1) it has…
A: The time-weighted rate of return is the geometric mean of return for each period.
Q: C(x)=0.08x+11.75 What is the total cost for an order of 20 copies?
A: Here, Total No. of Copies (x) is 20 Equation of Cost is C(x)=0.08x+11.75
Q: 4) 1) Miguel is attending a 2-year college. As a freshman, he was approved for a 10-year, federal…
A: Principal Amount = $3100 Rate of Interest = 4.29% No. of years = 2.5
Q: ACCOUNT INFORMATION Type Revolving Account Number 234 98765 90 Billing Date 16 Aug Payment Due Date…
A: Credit cards are now very common now days and buying and selling can be done through credit cards…
Q: You were recently hired by Scheuer Media Inc. to estimate its cost of capital. You obtained the…
A: Cost of Equity: cost of equity is the minimum required rate of return that is expected to be…
Q: You owe $2,000 on a credit card that charges 20% interest. You have $2,200 in your savings account…
A: Debt on Credit card = $2,000 Bank balance on Savings account = $2,200 SB Interest rate = 1.69%…
Q: Tom wishes to purchase a property that's been valued at $400,000. He has 15% of this amount…
A: A mortgage refers to a covered loan that an individual borrows to purchase a property. The property…
Q: 2. Critically evaluate the organizational and management issues (such as power, hierarchy and…
A: Organizations are social entities that rely on structures, systems, and processes to achieve their…
Q: Iron Manufacturers made two announcements concerning its common stock today. First, the company…
A: Next year dividend = d1 = $2.10 Growth rate = g = 2.5% Rate of return = r = 10%
Q: The common stock of Textile Inc. pays a quarterly dividend of $0.40 a share. The company has…
A: Value of stock is the present value of dividend that are going to be received in the future and…
Q: The spot asset price is $53. A call on the asset with a strike price of $54 has a premium or of…
A: Call option gives the holder of the option , the right and not obligation to buy underlying asset at…
Q: Yosma manages a clothing store. In November, sales were $192,500. In December, sales were $286,850.…
A: November sales=$192,500 December sales=$286,850 Required : Rate of Change=?
Q: Barker Company calculated the NPV of a project and found it to be $63,900. The project's life was…
A: The NPV of the Project is $63,900. The estimated life of the project is 8 years. The annual…
Q: A derivative is a financial instrument whose value is derived from the underlying asset. It’s an…
A: A derivative is a type of financial contract whose value is determined by the value of an underlying…
Q: Which is not direct measure of a firm's profitability? C. Price-earnings A. Basic EPS B. Profit…
A: The profitability understanding is important part in the decision making because the profit help the…
Q: A firm must choose from six capital budgeting proposals outlined below. The firm is subject to…
A: According to Internal rate of return(IRR) decision criteria, a project should be accepted if its IRR…
Q: stock with an annual standard deviation of 18 percent currently sells for $68. The risk-free rate is…
A: Put option gives opportunity to sell stock on expiration but there is no obligations to do that. Put…
Q: When performing benefit-cost analysis, economists usually discount future benefits and costs. Why?…
A: This is based on capital budgeting and concept of time value of money. Benefit-cost analysis is done…
Q: 4. A bond has a par value of $1,000, a yield of 6.54 percent, and a coupon of 4.32 percent, paid…
A: A bond provides a series of periodic equal payments at equal interval till the maturity of the bond…
Q: Original cost Estimated life Salvage value Estimated annual cash inflows Estimated annual cash…
A: Net present value(NPV) is the difference between present value of all cash inflows and initial…
Q: 1. Which statement is not true regarding the market portfolio? a.It lies on the efficient…
A: A market portfolio is a diversified portfolio with all the assets in the market with proportion…
Q: 14. Calculating Present Values (LO2) The first comic book featuring Superman was sold in 1938. In…
A: Price of Book in 2014 (FV)=$3,200,000 Rate of return (r)=25.53% Time period (n) =2014-1938…
Q: Find the maturity value on a loan of $2,500 at 11.5% interest, for 72 months. Use the formula MV = P…
A: 1. MV = P + I where , MV = maturity value of loan P = amount of loan I = Interest amount on loan…
Q: EM Publishing Company is considering publishing an electronic textbook about spreadsheet…
A: total contribution = Total sales - total variable cost profit = total contribution - fixed costs
Q: An HVAC technician is comparing pension plans for two different job offers. First offer: $58,000…
A: Monthly pension payments refer to the payments made every month including the amount of basic and…
Q: Use the typical personal financial life cycle to present the; situation, financial needs and an…
A: The personal financial life cycle refers to the various stages individuals go through in their…
Q: A 30-year maturity bond with a face value of $1,000 making annual coupon payments with a coupon rate…
A: “Hi There, thanks for posting the question. But as per Q&A guidelines, we must answer the first…
Q: Thomas has started working, and he will be putting $100 aside, at the end of every month, to…
A: Here, Particulars Values Present value (PV) $ 0 Monthly deposits (PMT) $ 100.00 Future…
Q: O $3,433.89 O $3,630.56 $3,636.11 $3,793.72
A: In period less than one simple ordinary interest is applied and computations is done based on number…
Step by step
Solved in 4 steps with 2 images
- You have found the following information:Stock price = $90Exercise price = $96Call price = $5Put price = $10Expiration is in 6 monthsWhat is the risk-free rate implied by these prices?Thecovarianceofthemarket'sreturnwithaStockA'sreturnis0.003andthestandarddeviation of the market's return is 0.05. Stock A's beta is ________. The risk free rate is 6% and the expected market return is 15%. Stock A's current price is $25 and will pay a $1 dividend at the end of the year. If the stock is priced at $30 at year-end, it is _______. a) 1.2; underpriced, so buy it. b) 1.5; underpriced, so buy it. c) I .2; overpriced, so sell it. d) 1.5; overpriced, so sell it. e) None of the aboveAssume that the future stock price in T years is given by ST = S0 exp[(μ – 0.5σ2)T + (σ√T)ε], where the current stock price S0=105, expected return µ=0.15, volatility σ=0.80 and ϵ is a standard normal random variable. What is the price level in 6 months such that there is only a 1% chance of the actual value being higher? a. 360 b. 26 c. 105 d. 570
- Suppose you are attempting to value a 1-year expiration option on a stock with volatility (i.e., annualized standard deviation) of σ = 0.34. What would be the appropriate values for u and d if your binomial model is set up using: 1 period of 1 year. 4 subperiods, each 3 months. 12 subperiods, each 1 month.2. Two-step Binomial Tree St=100 Step: n=0 Su=105 Sd=95.23 (Bonus question, maturity n=1 Suu=110.25 Sud=Sdu=100 Sdd=90.70 n=2 Consider the above two-step binomial tree, with each step being three months, At=0.25. The stock price is shown on the tree. The annual risk-free rate is 5%. u= Su/St=1.05, d=1/u. There is no dividend from the stock. 1) Consider an at-the-money European call option (S=K) with six-month maturity a) What is the payoff to this call option at the expiration date at each possible stock price? b) Calculate the call option fair value today. 2) Consider a European put option with six-month maturity and a strike price of $90. a) What is the payoff to this put option at the expiration date at each possible stock price? b) Calculate the put option fair value today. ) Calculate at-the-money American call option (S-K) with six-monthYou know that the prices on a stock market follow a lognormal geometric random walk. Given the following parameters: 0,15 o? = 0,04, calculate: The expected log return for 5 years The median log return for 10 years The median gross 10-year return If the stock price starts at $100, what is the expected price after 10 years?
- Suppose the next month rate of return on a portfolio (worth $1M) is distributed as follows. Return Rate -0.05 -0.03 -0.01 0.00 0.01 0.03 0.04 0.07 0.10 0.12 Probability 1% 1.5% 2.5% 5% 10% 20% 25% 20% 10% 5% What is the expected rate of return given that the return is known to be greater than or equal to 4%?The risk-free rate is 3.7% and you believe that the S&P 500's excess return will be 11% over the next year. If you invest in a stock with a beta of 1 (and a standard deviation of 30%), what is your best guess as to its expected excess return over the next year? Question content area bottom Part 1 The expected excess return over the next year is enter your response here %. (Round to two decimal places.)Consider a stock, the current price (S.) of which is $30. We model stock-price evolution using a Binomial model. In every three-month period, u = 1.1052 and d = 0.9048. The risk free rate of interest is 5% per annum continuously compounded. The four-step Binomial tree is shown below: 44.75 40.50 36.64 36.64 33.16 33.16 30 30.00 30.00 27.15 27.15 24.56 24.56 22.22 20.11 Node Time: 0.0000 0.2500 0.5000 0.7500 1.0000 A European-style exotic derivative has been written on this stock. The derivative has one year to expiry. Denote by S;, S2, S; and S4 the stock price after three, six, nine and twelve months respectively. The payoff to the derivative is specified as follows: [max(S2,S,)–min(S,,S,) if S, 2 30 Рayoff 3D max(S,S,S,)-S, if S, < 30 Required: Using a four-step Binomial framework and the risk-neutral approach, calculate the current value of this exotic derivative. Use continuous compounding for all present value calculations. Show all working.
- If D, = S1.75, g (which is constant) = 3.6%, and P. =$40.00, what is the stock's expected total return for the coming year? 6.42% O 8.13% 9.92% 7.64% O 7.48%For a two-period binomial model, you are given: Each period is one year. The current price for a non dividend-paying stock is 20. u = 1.2840, where u is one plus the rate of capital gain on the stock per period if the stock price goes up. d = 0.8607, where d is one plus the rate of capital loss on the stock per period if the stock price goes down. The continuously compounded risk-free interest rate is 5%. Calculate the price of an American call option on the stock with a strike price of 22.Suppose you are attempting to value a 1-year expiration option on a stock with volatility (i.e., annualized standard deviation) of σ = .40. What would be the appropriate values for u and d if your binomial model is set up using:a. 1 period of 1 year.b. 4 subperiods, each 3 months.c. 12 subperiods, each 1 month.