a) Is there an arbitrage? Suppose an investment firm sells options. (b) What is the t=0 price (premium) of a call option on stock 2 with exercise price E=12? (c) What is the t=0 price (premium) of a put option on stock 1 with exercise price E=23? Suppose a start-up company wants to go public. The firm has total costs of $100,000 at date t=1 and sales of $120,000 in state 1, $230,000 in state 2, and $140,000 in state 3. The firm wants to issue 1,000 IPO shares. (A share is endowed with a cash flow right of 0.1% of the total profits of the firm
(a) Is there an arbitrage?
Suppose an investment firm sells options.
(b) What is the t=0 price (premium) of a call option on stock 2 with exercise price E=12?
(c) What is the t=0 price (premium) of a put option on stock 1 with exercise price E=23?
Suppose a start-up company wants to go public. The firm has total costs of $100,000 at date
t=1 and sales of $120,000 in state 1, $230,000 in state 2, and $140,000 in state 3. The firm
wants to issue 1,000 IPO shares. (A share is endowed with a cash flow right of 0.1% of the
total profits of the firm.)
(d) The underwriter suggests an IPO price of $40 per share. Will this IPO be successful,
i.e. will there be a positive demand for the shares?
![Consider an economy with two dates (t=0,1) and at t=1 there are three states. The following
three stocks are traded:
x;=(10,0,30) x2=(0,20,40) x3=(20,20,0)
The t=0 prices of these stocks are given as follows
(p!, p2, p3)=(12, 14, 8).
(a) Is there an arbitrage?
Suppose an investment firm sells options.
(b) What is the t=0 price (premium) of a call option on stock 2 with exercise price E=12?
(c) What is the t=0 price (premium) of a put option on stock 1 with exercise price E=23?
Suppose a start-up company wants to go public. The firm has total costs of $100,000 at date
t=1 and sales of $120,000 in state 1, $230,000 in state 2, and $140,000 in state 3. The firm
wants to issue 1,000 IPO shares. (A share is endowed with a cash flow right of 0.1% of the
total profits of the firm.)
(d) The underwriter suggests an IPO price of $40 per share. Will this IPO be successful,
i.e. will there be a positive demand for the shares?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcd51db57-4539-4ba1-9709-7d3ffd19490a%2F77297252-1f5c-43e1-a397-29dfea938644%2Fuhh8wfz_processed.png&w=3840&q=75)
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