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An investor wants to purchase a stock that sells for $48. What is the value of a one-year put option to buy the stock at $45, if debt currently yields 8% and the standard deviation of stock returns is 11%? a. $3.84 b. $6.68 c. $5.28 d. $3.00
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- The current price of a non-dividend-paying stock is $40. Over the next year it is expected to rise to $44 or fall to $36. An investor buys put options with a strike price of $41. What is the price of each option? The risk-free interest rate is 2% per annum (assume discrete compounding). a. $2.35 b. $1.76 c. $2.18 d. $1.96Suppose you are thinking of purchasing the SunStar’s common stock today. If you expect SunStar to pay $0.80 dividend at the end of year one and $1.6 dividend at the end of year two and you believe that you can sell the stock for $15 at that time. If you required return on this investment is 10%, how much will you be willing to pay for the stock? a. $13.95 b. $14.44 c. 14.19 d. $15.51QUESTION 1 Suppose you purchased a stock a year ago. Today, you receive a dividend of $16 and you sell the stock for $99. If your return was 11%, at what price did you buy the stock? QUESTION 2 A stock's risk premium is equal to the: a. risk-free rate plus the expected market risk premium b. expected market risk premium times beta c. expected market return times beta d. treasury bill yield plus the expected market return.
- Consider two stocks: Stocks Current Price Possible Prices after one year Stock ABC $12.00 ABC + = $13.60 ABC – = $11.20 Stock XYZ $10.00 ABC + = $11.75 ABC – = $8.80 Assume a risk-free borrowing and lending rate is 5.20% and that neither stock pays dicidends, and a fractional shares can be bought and sold. Question: 1. Do you see that there opportunity to profit in this case? If so, how can that opportunity be realized? Explain your answer 2. Suppose that you are to buy at the current price, through borrowing,1000 shares of stock ABC, and sell it short. This allows you to buy stock XYZ. You also see an opportunity to engage in the bonds market risk-free2.a Do you think you can gain profit from this decision? 2.b If so, by how much? Show complete solution to justify your answerbased on higher and a lower price after one year, for both stocks.Please answer both A stock is currently selling for $90.83 and is expected to sell for $102.27 in 1 year. If the company pays a dividend of $2.63 what is the stock's HPR? QUESTION 2 A stock has a beta of 1.18. The risk free rate is 0.974% and the market risk premium is 5%. What is the fair return on the stock?The current price of a non-dividend-paying stock is $30. Over the next six months it is expected to rise to $36 or fall to $26. Assume the risk-free rate is zero. What is the initial value of the call option? Choose the right answer: a. $2 b. $3 c. $1.6 d. $2.4
- Refer to the stock options on Microsoft in the Figure 2.10. Suppose you buy a November expiration call option on 100 shares with the excise price of $140. Required: a-1. If the stock price at option expiration is $144, will you exercise your call?a-2. What is the net profit/loss on your position? (Input the amount as a positive value.)a-3. What is the rate of return on your position? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) b-1. Would you exercise the call if you had bought the November call with the exercise price $135?b-2. What is the net profit/loss on your position? (Input the amount as a positive value.)b-3. What is the rate of return on your position? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)c-1. What if you had bought the November put with exercise price $140 instead? Would you exercise the put at a stock price of $140?c-2. What is the rate of return on your position? (Negative…The current price of a non-dividend-paying stock is $30. Over the next six months it is expected to rise to $36 or fall to $26. Assume that the risk-free rate is zero. An investor sells put options with a strike price of $32. What is the risk-neutral probability of the underlying hitting $36 and what is the value of each put option? Question 5Answer a. 0.4 and $3.6 b. 0.6 and $3.6 c. 0.6 and $1.6 d. 0.4 and $1.6Question 5: A call option on a stock that expires in a year has a strike price of $99. The current stock price is $100 and the one-year risk free interest rate is 10%. The price of this call is $6. a) Is arbitrage possible? What is the arbitrage position? b) do you het this minimum? Find the minimum arbitrage profit for this strategy. When
- Suppose that you are willing to pay $450.33 today for a share of stock which you expect to sell at the end of one year for $500.25. If you require an annual rate of return of 15 percent, what should be the estimate of the amount of the annual dividend which you expect to receive by the end of Year 1 prior to the sale of the stock? Assume that the estimated return equals the required rate of return. Options: a. $17.63 b. $1.60 c. $10.99 d. $19.25 e. $3.60Answer the multiple-choice question below: 1.If you buy a stock for a price of $23 and if you expect the stock to pay a dividend of $1.242 one year from now and to grow at a constant rate g = 8% in the future, then the required rate of return will be __________. Select one: a.12.4% b.20.4% c.13.4% d.14.5%Suppose XYZ stock pays no dividends and has a current price of $50. The forward price for delivery in 1 year is $55. Suppose the 1-year eective annual interest rate is 10%. (a) Graph the payo and prot diagrams for a forward contract on XYZ stock with a forward price of $55. (b) Is there any advantage to investing in the stock or the forward contract? Why? (c) Suppose XYZ paid a dividend of $2 per year and everything else stayed the same. Now is there any advantage to investing in the stock or the forward contract? Why?
