Yourgrandmother would like to share some of her fortune with you. She offers to give you money under one of the following scenarios (you get to choose):1. $8,550 a year at the end of each of the next eight years2. $48,350 (lump sum) now3. $98,650 (lump sum) eight years from nowCalculate the present value of each scenario using an 8% interest rate. Which scenario yields the highest present value? Would your preference change if you used a 12% interest rate?(Click the icon to view the present value annuity factor table.)(Click the icon to view the present value factor table.)(Click the icon to view the future value annuity factor table.)(Click the icon to view the future value factor table.)Using an 8% interest rate, calculate the present values for each scenario. (Round the amounts to the nearest dollar.)Present value of Scenario 1$49,137Present value of Scenario 2$Present value of Scenario 3$48,35053,271Which scenario yields the highest present value?Scenario 3 appears to be the best option. Based on an 8% interest rate, its present value is the highest .Using a 12% interest rate, calculate the present values for each scenario. (Round the amounts to the nearest dollar.)Present value of Scenario 1

Given in the question: Interest rate = 8% There are three scenarios which are given in the question…

Answered: Using an 8% interest rate, calculate…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Suppose that, in each period, the cost of a security either goes up by a factor of 2 or goes down by a factor of 1/2 (i.e.,u= 2, d=1/2). If the initial price of the security is 100, determine the no-arbitrage cost of a call option to purchasse the security at the end of two periods for a price of 150. My main question is what should the no-arbitrage price of the call be? Can I have complete detail and formula please.
An investor has $1000 available for a 1-year investment. The investor is considering the following three options:Option APossible return 30%, 20%, 0%, -20%Probability 25%, 40%, 20%, 15%Option BPossible return 50%, 30%, 0%, -40%Probability 15%, 50% ,20% ,15% Option CGuaranteed return 10%Probability 100%i. Based on the expected returns, which of these options should the investor choose?ii. Compute the standard deviations for Option A and Option B. Which one of options A, B, and C has the least risk (i.e. the smallest standard deviation), which one has the highest risk? What can you say about the relationship between the expected returns and the risks of financial assets in the normal situation?
Find the PUT option price using the following data: S0 = $215 X = $220 Risk-free Int Rate = 5% Two possibilities of ST at expiration: $200 or $250 Expiration: 2 years from today Upload a Word or photo file. Keep 2 decimal places.
An investor must choose between two options. The first option (A) offers AED 10m for AED 2m a year for 5 years. The second optopm (B) offers AED 11m of AED 1m a year for four yeats and AED 7m in year 5. compare the present value of each option by assumong a range of the required rate of return of the investor say 8% 9% 10% 11% and 12% what is your advice?
We will derive a two-state put option value in this problem. Data: S0 = $180; X = $190; 1 + r = 1.10. The two possibilities for ST are $210 and $110.a. The range of S is $100 while that of P is $80 across the two states. What is the hedge ratio of the put? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) (The answer for this one is -.80) :)b. Form a portfolio of four shares of stock and five puts. What is the (nonrandom) payoff to this portfolio? (Round your answer to 2 decimal places.) c. What is the present value of the portfolio? (Round your answer to 2 decimal places.) d. Given that the stock currently is selling at $180, calculate the put value. (Do not round intermediate calculations and round your answer to 2 decimal places.)
Using put-call parity, if the price of an At-the-Money Call option maturing in 1 day is $3.14, what is the price of an of an At-the-Money Put option maturing in 1 day (give an approximation)? A. $0.95 B. $2.86 C. $3.14 D.$3.26
An option has a 40% (actuarial) chance of paying $7.03 when the underlying asset increases by 6.3% and a 60% (actuarial) chance of paying $8.67 if the underlying asset declines by 10.8%. Given that the risk-free rate is 3.6% p.a. and there are 3 months until this option is to expire, what is the risk-neutral price of this option? Answer:
Basic information of an American put option: Remaining maturity: two month; risk-free rate: 5% (continuously compounded); the underlying current Price: 50; Annual Volatility: 20%; Final Price: 50. Try to construct a two-phase binary tree to price it
State the return rate (in %) for your optimal portfolio.
Given the following information, predict the European call option's new price after the risk free rate changes. Initial call option price = $3 Initial risk free rate = 9.9% Rho = 9 New risk free rate = 9.5% (required precision 0.01 +/- 0.01) Greeks Reference Guide: Delta = ∂π/∂S Theta = ∂π/∂t Gamma = (∂2π)/(∂S2) Vega = ∂π/∂σ Rho = ∂π/∂r Recall that rho is defined as the partial derivative of the option's price with respect to the risk free rate. (i.e. rho = ∂π / ∂r).
Assume interest rate is zero. In a shout call option the strike price is $30. The holder shouts when the asset price is $40. What is the payoﬀ from the option if the ﬁnal asset price is $35? A. $0 B. $5 C. $10 D. $15
a. Use the Black-Scholes formula to find the value of the following call option. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) i. Time to expiration 1 year. ii. Standard deviation 40% per year. iii. Exercise price $84. iv. Stock price $84. v. Interest rate 4% (effective annual yield). b. Now recalculate the value of this call option, but use the following parameter values. Each change should be considered independently. (Do not round intermediate calculations. Round your final answers to 2 decimal places.) i. Time to expiration 2 years. ii. Standard deviation 50% per year. iii. Exercise price $94. iv. Stock price $94. v. Interest rate 6%. c. In which case did increasing the value of the input not increase your calculation of option value? a. Call option value b-i. Call option value when time to expiration is 2 years. b-ii. Call option value when standard deviation is 50% per year. b-iii. Call option value when exercise price is $60. b-iv. b-v. C…

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