Suppose you are attempting to value a 1-year expiration option on a stock with volatility (i.e., annualized standard deviation) of σ = 0.34. What would be the appropriate values for u and d if your binomial model is set up using: 1 period of 1 year. 4 subperiods, each 3 months. 12 subperiods, each 1 month.

Suppose you are attempting to value a 1-year expiration option on a stock with volatility (i.e., annualized standard deviation) of σ = 0.34. What would be the appropriate values for u and d if your binomial model is set up using: 1 period of 1 year. 4 subperiods, each 3 months. 12 subperiods, each 1 month.

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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Find the standard deviation for a security that has three one-year returns of -1%,8% , and 16%, respectively .
You are given the following returns on "the market" and Stock F during the last three years. We could calculate beta using data for Years 1 and 2 and then, after Year 3, calculate a new beta for Years 2 and 3. How different are those two betas, i.e., what's the value of beta 2 - beta 1? (Hint: You can find betas using the Rise-Over-Run method, or using your calculator's regression function.) Year Market Stock F 1 6.10% 19.50% 2 12.90% −3.70% 3 16.20% 21.71% A. 10.96 B. 10.91 C. 11.06 D. 11.01 E. 11.11 Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
Year End Index Realized Return 2000 23.6% 2001 24.7% 2002 30.5% 2003 9.0% 2004 -2.0% 2005 -17.3% 2006 -24.3% 2007 32.2% 2008 4.4% 2009 7.4%
Suppose you have the following information concerning a particular options.Stock price, S = RM 21Exercise price, K = RM 20Interest rate, r = 0.08Maturity, T = 180 days = 0.5Standard deviation,= 0.5 a. What is correct of the call options using Black-Scholes model? * Look for N(d1) and N(d2) from the cumulative standard normal distribution table:
What is portfolio A's CAPM beta based on your analysis? Round off your answer to three digits after the decimal points. State your answer as a percentage point as 1.234. Compute the Treynor measure for portfolio B. Round off your answer to three digits after the decimal point. State your answer as 1.234
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.
please this part of the question ASAP too What is the standard deviation of the rate of return on your client's portfolio? (Round your intermediate calculations and final answer to 1 decimal place.)
Consider the following six months of returns for two stocks and a portfolio of those two stocks: (Click the icon to view the monthly returns.) Note: The portfolio is composed of 50% of Stock A and 50% of Stock B. a. What is the expected return and standard deviation of returns for each of the two stocks? b. What is the expected return and standard deviation of returns for the portfolio? c. Is the portfolio more or less risky than the two stocks? Why? a. What is the expected return and standard deviation of returns for each of the two stocks? The expected return of Stock A is 0%. (Round to one decimal place.) The expected return of Stock B is 1%. (Round to one decimal place.) The standard deviation of Stock A is 0.04195. (Round to five decimal places.) (Round to five decimal places.) The standard deviation of Stock B is Monthly Returns Stock A Stock B Portfolio Jan 1% 0% 0.5% Feb 4% - 3% 0.5% D Mar -7% 8% ..... 0.5% Apr 2% - 1% 0.5% May - 3% 4% 0.5% Jun 3% - 2% 0.5% WOCHE X ans
You are given the following information concerning options on a particular stock: Stock price= Exercise price= Risk-free rate= Maturity= Standard deviation= $83 Intrinsic value=$ $80 6% per year, compounded continuously 6 months 47% per year (a)What is the intrinsic value of the call option? (Please keep two digits after the decimal point.) (b)What is the time premium of the call option? (Please keep two digits after the decimal point.) Time premium of the call option=$
This section asks you to calculate prices for various options. In all cases, consider a rate r = 7.97% per year. Estimate the volatility of returns using the estimator: 1 n-1 σ²≈ T-t i=0 Si+1 log. Sti 2 The term of each option will be T = 182/360 (half a year). Determine a reasonable strike K, which is at similar levels to the price series you have downloaded. An option is a derivative instrument that gives its holder the right to buy or sell an underlying asset at a pre-agreed price K at a future date T. If this right can only be exercised in time T, we say that the option is of the European type. If it can be exercised at T or at any time prior to T, then we say that the option is American. Likewise, if the option grants the right to buy, we say that the option is Call type, if it grants the right to sell then the option is Puttype. These types of options are the simplest and are known as European vanilla options. In this case, if T is the expiration date of the contract, and St is…

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