. Now assume that the effective annual interest rate is 6.70%, which corresponds to a monthly interest rate of 0.54%. Calculate the present value of each call option's exercise price and the adjusted intrinsic value for each call option. (Do not round your intermediat calculations and round your final answers to 2 decimal places.) Company RJay RJay Sell-Mart Xenon Time to Expiration (months) 1 2 5 6 $ Strike 60 70 60 7.50 $ So 62.92 62.84 69.80 6.78 PV(X) Adjusted Intrinsic Value

. Now assume that the effective annual interest rate is 6.70%, which corresponds to a monthly interest rate of 0.54%. Calculate the present value of each call option's exercise price and the adjusted intrinsic value for each call option. (Do not round your intermediat calculations and round your final answers to 2 decimal places.) Company RJay RJay Sell-Mart Xenon Time to Expiration (months) 1 2 5 6 $ Strike 60 70 60 7.50 $ So 62.92 62.84 69.80 6.78 PV(X) Adjusted Intrinsic Value

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Effective Interest Rate

The term interest rate can be defined as the amount that is charged by the lender as a percentage on the principal amount. Interest rate which is charged annually is known as annual percentage rate.

Question

Company
RJay
RJay
Sell-Mart
Xenon
Time to Expiration
(months)
Company
RJay
RJay
Sell-Mart
Xenon
1 $
2
5
6
Time to Expiration
(months)
1
2
5
6
Strike
$
60
70
60
7.50
Strike
$
b. Now assume that the effective annual interest rate is 6.70%, which corresponds to a monthly interest rate of 0.54%. Calculate the
present value of each call option's exercise price and the adjusted intrinsic value for each call option. (Do not round your intermediate
calculations and round your final answers to 2 decimal places.)
So
60 $
70
60
7.50
62.92
62.84
69.80
6.78
So
Intrinsic Value
$
62.92
62.84
69.80
6.78
2.92
0.00
9.80
0.00
PV(X)
Adjusted Intrinsic Value

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Please use the following information to answer You have account paybles: ₤5 m in one year.InterestUS: 6.10% per annum & InterestUK: 9% per annumSpot exchange rate: $1.50/£ & Forward exchange rate: $1.46/£ (1-year maturity)Call option strike price: $1.46/£ & Put option premium: $0.02/£How much will you receive in $ if you use the forward contract hedge? You must show all work to earn credit. No credit will be given without supporting work. 5,000,000 GBP x $1.46 = $7,300,000 $7,300,000 x 6.10% x 1 year = $445,300 $7,300,000 + $445,300 = $7.7453 million 2. Draw a graph for the forward contract hedge. (X axis is the spot rate in the future. Y axis is “$ cash paid.”)
For the following problems assume the effective 6-month interest rate is 2%, the S&R 6-month forward price is $1020, and use these premiums for S&R options with 6 months to expiration: Strike Call $950 $120.405 $51.777 1000 93.809 1020 84.470 1050 71.802 1107 51.873 Tuercice Put verly 74.201 84.470 101.214 137.167 T--- Q4 (Exercise 3.14) Suppose you buy a 950-strike S&R call, sell a 1000-strike S&R call, sell a 950-strike S&R put, and buy a 1000-strike S&R put. (a) Verify that there is no S&R price risk in this transaction. (b) What is the initial cost of the position? (c) What is the value of the position after 6 months? (d) Verify that the implicit interest rate in these cash flows is 2% over 6 months.
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