Use the Black-Scholes formula for the following stock: Time to expiration Standard deviation Exercise price 6 months 56% per year $55 Stock price $55 Annual interest rate 6% 0 Dividend Recalculate the value of the call with the following changes: a. Time to expiration b. Standard deviation c. Exercise price d. Stock price e. Interest rate 3 months 30% per year $63 $63 9% Select each scenario independently. Note: Round your answers to 2 decimal places. a. b. C. d. e. Value of the Call Option
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- Use the Black-Scholes formula for the following stock: Time to expiration Standard deviation Exercise price Annual interest rate Stock price Dividend 6 months 57% per year $44 $44 2% 0 Recalculate the value of the call with the following changes: a. Time to expiration b. Standard deviation c. Exercise price d. Stock price e. Interest rate 3 months 30% per year $49 $49 4% Select each scenario independently. Note: Round your answers to 2 decimal places. a. b. C. d. e. Value of the Call OptionUse the Black-Scholes formula for the following stock: Time to expiration Standard deviation Exercise price 6 months 46% per year $48 Stock price $48 Annual interest rate 6% 0 Dividend Recalculate the value of the call with the following changes: a. Time to expiration b. Standard deviation 3 months 30% per year c. Exercise price d. Stock price e. Interest rate $56 $56 8% L Select each scenario independently. Note: Round your answers to 2 decimal places. Value of the Call Option a. C falls to b. C falls to c. C falls to d. Crises to e. Crises toUse the Black-Scholes formula for the following stock: Time to expiration Standard deviation Exercise price Stock price Annual interest rate Dividend 6 months 56% per year $55 $55 6% 0 Recalculate the value of the call with the following changes: a. Time to expiration b. Standard deviation c. Exercise price d. Stock price e. Interest rate 3 months 30% per year $63 $63 9% Select each scenario independently. Note: Round your answers to 2 decimal places. a. b. C. d. e. Value of the Call Option
- Historical Returns: Expected and Required Rates of Return You have observed the following returns over time: Assume that the risk-free rate is 5% and the market risk premium is 4%. a. What are the betas of Stocks X and Y? Do not round intermediate calculations. Round your answers to two decimal places. % Year 2017 2018 2019 2020 2021 % Stock X 12% 17 -13 2 22 % Stock Y 15% 7 -4 3 12 Stock X: Stock Y: b. What are the required rates of return on Stocks X and Y? Do not round intermediate calculations. Round your answers to two decimal places. Stock X: Stock Y: c. What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y? Do not round intermediate calculations. Round your answer to two decimal places. Market 13% 12 -10 2 151. Use the one-period valuation model P = E/(1 + k) + P1/(1 + k) to price the following stocks (remember to decimalize percentages). Earnings (E = $) 1.00 1.00 1.00 0 0 0 1.00 1.50 2.00 0 Required return (k = %) 10 15 20 5 5 5 10 10 10 10 Expected Price Next Year (P1 = $) 20 20 20 20 30 40 50 50 50 1 Answer: Price Today (P = $) 19.10 18.26 17.50 19.05 28.57 38.10 46.36 46.82 47.27 0.91Asset W has an expected return of 8.8 percent and a beta of .90. If the risk-free rate is 2.6 percent, complete the following table for portfolios of Asset W and a risk-free asset. (Do not round intermediate calculations. Enter your expected returns as a percent rounded to 2 decimal places, e.g., 32.16, and your beta answers to 3 decimal places, e.g., 32.161.) Portfolio Expected Percentage of Portfolio in Asset W Portfolio Return Beta 0 % 2.60 % 25 4.15 % 0.225 50 5.70 % 0.450 75 7.25 % 0.680 100 8.80 % 0.900 125 10.35 % 1.130 150 11.90 % 1.350 If you plot the relationship between portfolio expected return and portfolio beta, what is the slope of the line that results? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Slope of the line
- Assume these are the stock market and Treasury bill returns for a 5-year period: Year 2016 2017 2018 2019 2020 Stock Market Return (%) 33.30 13.20 -3.50 14.50 23.80 Required: a. What was the risk premium on common stock in each year? b. What was the average risk premium? c. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.) 3 Required A Required B T-Bill Return Complete this question by entering your answers in the tabs below. Standard deviation (%) 0.12 0.12 0.12 0.07 0.09 x Answer is complete but not entirely correct. Required C What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.) Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. 13.69 X % घConsider the rate of return of stocks ABC and XYZ. Year rABC rXYZ 1 20 % 28 % 2 8 11 3 16 19 4 4 1 5 2 −9 a. Calculate the arithmetic average return on these stocks over the sample period. b. Which stock has greater dispersion around the mean return? A. ABC B. XYZ c. Calculate the geometric average returns of each stock. What do you conclude? (Do not round intermediate calculations. Round your answers to 2 decimal places.) d. If you were equally likely to earn a return of 20%, 8%, 16%, 4%, or 2%, in each year (these are the five annual returns for stock ABC), what would be your expected rate of return? (Do not round intermediate calculations.) e. What if the five possible outcomes were those of stock XYZ? f. Given your answers to (d) and (e), which measure of average return, arithmetic or geometric, appears more useful for predicting future performance? A. Arithmetic B. GeometricUse the Black-Scholes formula for the following stock: Time to expiration Standard deviation Exercise price Stock price Annual interest rate Dividend 6 months 43% per year $58 $57 2% 0 Calculate the value of a call option. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Value of a call option
- Consider the following information on a particular stock:Stock price = $88Exercise price = $84Risk-free rate = 5% per year, compounded continuouslyMaturity = 11 monthsStandard deviation =53% per year. What What is the delta of a call option?Given the information in the table below, what is the covariance between the return series of stock A and B. Round your answer! A B Year Past Returns Past Return 2017 20 16 2018 2 12 2019 -2 9 ER] 6.67 11.33 STD 11.72 3.51 W 50.00% 50.00% PAB 0.9638 None of the answers is correct 55.24 50.33 33.12 39.65You have estimated the following probability distributions of expected future returns for Stocks X and Y: Stock X Stock Y Probability Return Probability Return 0.1 -12 % 0.2 4 % 0.1 11 0.2 7 0.3 14 0.3 11 0.3 30 0.2 17 0.2 40 0.1 30 What is the expected rate of return for Stock X? Stock Y? Round your answers to one decimal place.Stock X: % Stock Y: % What is the standard deviation of expected returns for Stock X? For Stock Y? Round your answers to two decimal places.Stock X: % Stock Y: % Which stock would you consider to be riskier? is riskier because it has a standard deviation of returns.