Consider the toss of a (loaded) coin. In a "good" outcome, punter (bettor) will receive £1 in 12 months. In a "bad" outcome she will not receive anything. The fair market price of this bet is £0.45 and current prevailing risk-free interest rate is 5%. What is the implied probability of a "good" outcome? Assume continuous compounding. A) 0.4223 B) 0.4731 0.5269 0.5594

Consider the toss of a (loaded) coin. In a "good" outcome, punter (bettor) will receive £1 in 12 months. In a "bad" outcome she will not receive anything. The fair market price of this bet is £0.45 and current prevailing risk-free interest rate is 5%. What is the implied probability of a "good" outcome? Assume continuous compounding. A) 0.4223 B) 0.4731 0.5269 0.5594

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

Swaps

A swap is a derivative contract in which two parties are agreed to exchange their cash flows from two different financial instruments for a defined period. In swap contracts, cash flows from one financial instrument are fixed and cash flow from other financial instruments is variable based on the interest rate, exchange rate, and commodity price. Swap contracts are transacted in an over-the-counter system. Swap contracts are utilized to hedge risk and mitigate loss.

Question

Consider the toss of a (loaded) coin. In a "good" outcome, punter (bettor) will receive £1
in 12 months. In a "bad" outcome she will not receive anything. The fair market price of
this bet is £0.45 and current prevailing risk-free interest rate is 5%. What is the implied
probability of a "good" outcome? Assume continuous compounding.
A) 0.4223
B
0.4731
0.5269
0.5594

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not use ai please
Assume that the price of a forward contract is 127.87. The European options on the forward contract has an exercise price $150, expiring in 60 days. 3.75% is the continuously compounded risk-free rate, and volatility is 0.33. A. Using the Black model, calculate the price of a call option on a forward contract. B. Calculate the underlying asset's price. Using the Black-Scholes-Merton model, determine the price of a call option on the underlying asset. Should this pricing be any different from the one calculated in letter A? Explain your answer. C. Using the Black model, calculate the price of a put option on a forward contract. D. Using the Black-Scholes-Merton model, compute the price of a put option on the underlying asset. Should this pricing be any different from the one calculated in letter C? Explain your answer.
H3. Show proper step by step calculation
D3) Finance What is the probability that the put option is OTM at maturity if: the Stock is S = $195.00, no dividend is paid, the risk-free rate is r = 2.40%, the strike price is K = 209.00, the maturity is T = 23 months and the parameters are d1 = 0.2328 and d2 = -0.3175?

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