1. The current price of a stock is P100 and has volatility (o) of 0.25. The continuous risk free rate is 6.5%. The expected price in three (3) months is P110. The value to the short (seller) and to the long (buyer) would be?
1. The current price of a stock is P100 and has volatility (o) of 0.25. The continuous risk free rate is 6.5%. The expected price in three (3) months is P110. The value to the short (seller) and to the long (buyer) would be?
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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Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
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Transcribed Image Text:1. The current price of a stock is P100 and has volatility (ơ) of 0.25. The continuous risk free rate is
6.5%. The expected price in three (3) months is P110. The value to the short (seller) and to the
long (buyer) would be?
2. The expected price of an in one (1) year is P75 and its variance (ơ²) is 0.64. The current price of
the asset is P65. The Phibor being used as a reference rate is 7%. The value to the short and to
the long would be?
3. An asset has a current price of P80.00 and it has an expected price of P95 in 6 months. In your
assessment, the standard deviation (ơ) is 0.45. The reference rate is 5.5%. The value to the short
and to the long would be?
4. An asset has a current price of $10 and has volatility of 0.35. The expected price in 9 months is
$13. The US continuous risk free rate (r') is 5.5% while the Philippine continuous risk-free rate
(r") is 6.5%. The value to the short and to the long would be?
5. The price of a European stock is €50 and it as an expected price of €65 in 8 months. The stock
has a variance of 0.36. The European continuous risk free rate is 4.5% while the US continuous
risk free rate is 3.2%. The value to the short and to the long would be?
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