If the volatility of anon-dividend-paying stock is 20% per year and a risk-free rate is 5%per year, which of the following is the approximate value for p for a tree with a three-month time step?O 0.62O 0.58O None of theseO 0.50O 0.54DroviquCSarkmannsNovt A

Here, Particulars Values Volatility 20% Risk-free rate 5% Time period 3 Total number of…

Answered: If the volatility of a…

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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If D0 = $1.75, g (which is constant) = 3.6%, and P0 = $32.00, what is the stock's expected total return for the comingyear?
Assume that the future stock price in T years is given by ST = S0 exp[(μ – 0.5σ2)T + (σ√T)ε], where the current stock price S0=105, expected return µ=0.15, volatility σ=0.80 and ϵ is a standard normal random variable. What is the price level in 6 months such that there is only a 1% chance of the actual value being higher? a. 360 b. 26 c. 105 d. 570
Suppose DO = $2.00. rs= 9%, What if g = 30% the first year, 20% the second year, and 10% the third year, and return to its long-run constant growth rate of 4%, Calculate the value of the stock today? O $62.7846 O $55.5021 O $60.3211 O $65.7223 O $72.3487
3) Suppose that the price of a non-dividend-paying stock is $27, its vo itility is 20%, and the risk- free rate for all maturities is 6% per annum. Provide a table showing the relationship between profit and final stock price for a butterfly spread using European put option with strike prices of $20, $25, and $30 and a maturity of one year. Ignore the impact of time a e of money.
(Expected return and standard deviation) What is the expected return and standard devia- tion of the return for the next year on a stock that is selling for $30 now and has probabil- ities of 0.2, 0.6, and 0.2 of selling one year from now at $24, $33, and $39, respectively? Assume that no dividends will be paid on the stock during the next year and ignore taxes?
2. Two-step Binomial Tree St=100 Step: n=0 Su=105 Sd=95.23 (Bonus question, maturity n=1 Suu=110.25 Sud=Sdu=100 Sdd=90.70 n=2 Consider the above two-step binomial tree, with each step being three months, At=0.25. The stock price is shown on the tree. The annual risk-free rate is 5%. u= Su/St=1.05, d=1/u. There is no dividend from the stock. 1) Consider an at-the-money European call option (S=K) with six-month maturity a) What is the payoff to this call option at the expiration date at each possible stock price? b) Calculate the call option fair value today. 2) Consider a European put option with six-month maturity and a strike price of $90. a) What is the payoff to this put option at the expiration date at each possible stock price? b) Calculate the put option fair value today. ) Calculate at-the-money American call option (S-K) with six-month
Consider a stock with a current price of P = $27.Suppose that over the next 6 months the stockprice will either go up by a factor of 1.41 or downby a factor of 0.71. Consider a call option on thestock with a strike price of $25 that expires in6 months. The risk-free rate is 6%.(1) Using the binomial model, what are the endingvalues of the stock price? What are the payoffsof the call option?
The risk-free rate is 3.7% and you believe that the S&P 500's excess return will be 11% over the next year. If you invest in a stock with a beta of 1 (and a standard deviation of 30%), what is your best guess as to its expected excess return over the next year? Question content area bottom Part 1 The expected excess return over the next year is enter your response here %. (Round to two decimal places.)
What is Temporary financing?
The level of the Syldavian market index is 21,600 at the start of the year and 26,100 at the end. The dividend yield on the index is 4.3%. a. What is the return on the index over the year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Retur b. If the interest rate is 5%, what is the risk premium over the year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Risk Premium % Real Return % c. If the inflation rate is 7%, what is the real return on the index over the year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) %
For a two-period binomial model, you are given: Each period is one year. The current price for a non dividend-paying stock is 20. u = 1.2840, where u is one plus the rate of capital gain on the stock per period if the stock price goes up. d = 0.8607, where d is one plus the rate of capital loss on the stock per period if the stock price goes down. The continuously compounded risk-free interest rate is 5%. Calculate the price of an American call option on the stock with a strike price of 22.
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If the volatility of a non-dividend-paying stock is 20% per year and a risk-free rate is 5% per year, which of the following is the approximate value for p for a tree with a three- month time step? 0.62 0.58 None of these 0.50 0.54