For a stock, you are given that: i) The current stock price is 45 i) The stock is going to pay a dividend of 1.2 after 3 months, This is the only dividend to be paid in the coming 6 months, i) A 6-month 42-strike European put option on the stock has a premium of 0.36 iv) The continuosly compounded risk-free interest rate is 4% Consider a 6-month 42-strike American call option on the stock. Is it optimal to excerise that call option now? Posihle Anawen | Yes, because the sum of implicit put protection and interest on strike is greater than the present value of dividends |No, because the sum of implicit put protection and interest on strike is greater than the present value of dividends Yes, because the sum of implicit put protection and interest on strike is smaller than the present value of dividends No, because the sum of implicit put protection and interest on strike is smaller than the present value of dividends |Cannot he determined

For a stock, you are given that: i) The current stock price is 45 i) The stock is going to pay a dividend of 1.2 after 3 months, This is the only dividend to be paid in the coming 6 months, i) A 6-month 42-strike European put option on the stock has a premium of 0.36 iv) The continuosly compounded risk-free interest rate is 4% Consider a 6-month 42-strike American call option on the stock. Is it optimal to excerise that call option now? Posihle Anawen | Yes, because the sum of implicit put protection and interest on strike is greater than the present value of dividends |No, because the sum of implicit put protection and interest on strike is greater than the present value of dividends Yes, because the sum of implicit put protection and interest on strike is smaller than the present value of dividends No, because the sum of implicit put protection and interest on strike is smaller than the present value of dividends |Cannot he determined

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter16: The Markets For Labor, Capital, And Land

Section: Chapter Questions

Problem 12P

See similar textbooks

Similar questions

b) A stock you are evaluating just paid an annual dividend of £2.50. Dividends have grown at a constant rate of 1.5% over the last 15 years and you expect this to continue. i. If the required rate of return on the stock is 12%, what is the fair present value? If the required rate of return on the stock is 15%, what should the fair value be four years from today? ii.
Consider two European call options on the same stock with thesame strike price of $40. One option has a maturity of 1 month andthe other has a maturity of 3 months. Which option should be moreexpensive?
You are financial analyst for the XYZ company. The director has asked you to analyze two proposed capital investments, Project A and Project B. Each project has a cost of RM 10, 000, and the cost of capital for each project is 12 percent. The project s’ cash flows are as follows: Year Expected Net Cash Flows Project A Project B 0 (10,000) (10,000) 1 6500 3500 2 3000 3500 3 3000 3500 4 1000 3500 Calculate each project’s NPV. Which project or projects should be accepted?
In a financial market a stock is traded with a current price of 50. Next period the price of the stock can either go up with 30 per cent or go down with 25 per cent. Risk-free debt is available with an interest rate of 8 per cent. Also traded are European options on the stock with an exercise price of 45 and a time to maturity of 1, i.e. they mature next period. Find prices of Arrow-Debreu securities.
In September 2020, Facebook's stock price was about $250. A nine-month call on the stock, with an exercise price of $250, sold for $38. The risk-free interest rate was 2% a year. How much would you be willing to pay for a put on Facebook stock with the same maturity and exercise price? Assume that the Facebook options are European options. (Note: Facebook does not pay a dividend.) Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Value of put option
An investment will pay $100 at the end of each of the next 3 years, $300 at the end of year 4, $500 at the end of Year 5, and $300 at the end of Year 6. If other investments of equal risk earn 8% annually, what is this investment's present value? 923.98 976.31 1013.78 1007.56
Please provide answer in 1 hr please
1. Consider a wine dealer who has k bottles of wine. The dealer can sell them now (t = 0) or can store it for some time and then sell them later. The value of k bottles at t-th month is given by: Vt = ket The dealer can use the sales revenue as principal in a risk-free investment at rate r. (b) Write out the present value PV, of k bottles at t-th month.
Calculate the value of a stock that is expected to pay a constant dividend of $1.05per year if the required return is 11%.
A stock you are evaluating is expected to experience supernormal growth in dividends of 12 percent over the next three years. Following this period, dividends are expected to grow at a constant rate of 4 percent. The stock paid a dividend of $1.50 last year and the required rate of return on the stock is 11 percent. Calculate the stock's fair present value. (Do not round intermediate calculations.) Please show all the steps, including the equation(s).
1. Consider a wine dealer who has k bottles of wine. The dealer can sell them now (t = 0) or can store it for some time and then sell them later. The value of k bottles at t-th month is given by: Vt = ket The dealer can use the sales revenue as principal in a risk-free investment at rate r. (a) If the dealer sells them now, what is the sales revenue?
A 267.