Marissa purchases Stock K when the ask price is 25. The bid-ask spread is 0.55, and the commission rate is X%. The continuously compounded risk free interest rate is 5%. Marissa holds the stock for 18 months and then seils it when the ask price of the stock is 32. She makes a profit of 4 per share. What is X?

Marissa purchases Stock K when the ask price is 25. The bid-ask spread is 0.55, and the commission rate is X%. The continuously compounded risk free interest rate is 5%. Marissa holds the stock for 18 months and then seils it when the ask price of the stock is 32. She makes a profit of 4 per share. What is X?

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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Question 6 Answer parts a), b) and c) based on the information below: Kasandra has purchased 1,000 shares in ABC Ltd for $40 each. Her analysis suggests that the following four states of the economy with respective probabilities can affect the price of the share next year. She also expects to receive a dividend of $2 per share next year. States of economy Probability Price Boom 10% $50 Good 30% $48 Normal 40% $42 Recession 20% $30 a) For each scenario above, calculate the total holding period return for Kasandra. Calculate the expected return from this investment considering all scenarios. Round your answer to the nearest 0.01%. b) Calculate the total risk of this investment. Round your answer to the nearest 0.01%. /
Julie has one share of stock and one bond. The total value of the two securities is $1,102.14. The stock pays annual dividends. The next dividend is expected to be $15.15 and paid in one year. In two years, the dividend is expected to be $11.79 and the stock is expected to be priced at $254.84. The stock has an expected return of 11.19 percent per year. The bond has a coupon rate of 7.10 percent and a face value of $1,000; pays semi-annual coupons with the next coupon expected in 6 months; and matures in 17.5 years. What is the YTM of the bond? 8.68% (plus or minus 4 bps) 8.51% (plus or minus 4 bps) 4.26% (plus or minus 4 bps) 9.25% (plus or minus 4 bps) the answer cannot be obtained based on the given information
Assume you purchased the right to sell 2,000 shares of Target stock in February 2022 at a strike price of $240 per share. Suppose Target stock sells for $212 per share immediately before your options’ expiration. What is the rate of return on your investment? What is your rate of return if the stock sells for $268 per share (think about it)? Assume your holding period for this investment is exactly three months. Note: A negaive value should be indicated by a minus sign. Do not round intermediate calculations. Enter your 3-month returns as a percent rounded to 2 decimal places.
Rebecca is interested in purchasing a European call on a hot new stock, Up, Inc. The call has a strike price of $98.00 and expires in 95 days. The current price of Up stock is $115.36, and the stock has a standard deviation of 37% per year. The risk-free interest rate is 6.29% per year. Up stock pays no dividends. Use a 365-day year. a. Using the Black-Scholes formula, compute the price of the call. b. Use put-call parity to compute the price of the put with the same strike and expiration date. (Note: Make sure to round all intermediate calculations to at least five decimal places.)
3. Kelly has one share of a stock. She has two days to sell her stock. At the opening of the stock market on each day, she decides whether to hold or sell the stock. If she decides to sell the stock, she sells it at the opening price. On each day, the stock price is expected to increase by $20 with probability 0.4 and decrease by $16 with probability 0.6 at the closing of the market. Assume that the opening price on the first day is $100. Kelly wants to maximize her wealth. a. Construct a decision tree for Kelly's stock selling problem. b. Find an optimal decision strategy for Kelly using the expected value approach. What is the expected value of the optimal decision strategy? Show the backward pass procedure.
Jacob purchased a bond for $880 with a 9% coupon. He sold the bond after one year when it was paying him a current yield of 10%. What is the holding period return? 9.0% 9.5% 10.0% 11.0% 12.5%
Dumo is a trader at ZNF Equity traders and has just identified a stock, UFSI Limited, which is currently trading at R25 per share. Dumo decides to take a long position in at-the money put option and simultaneously buys one share of UFSI stock. The put option expires in 3 months’ time and costs R2.5 per share. Assume a contract consists of one put option. Required: Tabulate the Profit to the strategy at expiration for the following Exercise price R30; Stock price 20. Exercise price R30; Stock price 35. ST =20 ST =35 Stock Put (Pt) Premium Total profit
Paul sells a stock short for $50.76 per share and buys it back 1 year later for $54.99 after he covers a $2.81 per share dividend. What is Paul’s total return on this investment? (Round answer to 2 decimal places (e.g., 36.45). Use a negative sign for a negative return.)
Sara has one share of stock and one bond. The total value of the two securities is $1,123.21. The stock pays annual dividends. The next dividend is expected to be $14.95 and paid in one year. In two years, the dividend is expected to be $13.42 and the stock is expected to be priced at $299.76. The stock has an expected return of 13.82 percent per year. The bond has a coupon rate of 6.20 percent and a face value of $1,000; pays semi-annual coupons with the next coupon expected in 6 months; and matures in 17.5 years. What is the YTM of the bond? O7.68% (plus or minus 4 bps) 3.79% (plus or minus 4 bps) O7.57% (plus or minus 4 bps) 8.35% (plus or minus 4 bps) the answer cannot be obtained based on the given information
. Which of the followings is the most likely answer? Mr. Hamish paid a premium of $5 to buy a put on a stock that is currently valued at $60. The put strike price is $55. The maximum profit (including the premium) is ______ a) $0 b) $50 c) $55 d) $60
Sam purchased Walsh stocks at $200 per share three month ago and did not receive anydividends so far. If his target is to earn a 20% APR on the investments, at what stock price couldhe sell the stock now? (Hint: what is the HPR for 3 months?)
You own four call option contracts (100 shares/ contract) on Webster South stock with a strike price of $17.50. When you purchased the shares the option price was $0.85 and the stock price was $16.90 what is the intrinsic value of your investment if webster is currently selling for $16.40 a share?

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