F2 We will derive a two-state call option value in this problem. Data: So = $280; X = $290; 1 + r=1.10. The two possibilities for ST are $320and $200. The portfolio consists of 1 share of stock and 4 calls short.Required:a. The range of S is $120 while that of C is $30 across the two states. What is the hedge ratio of the call? (Round your answer to 2decimal places.)Hedge ratiob. Calculate the value of a call option on the stock with an exercise price of $290. (Do not use continuous compounding to calculatethe present value of X in this example, because the interest rate is quoted as an effective per-period rate.) (Do not round intermediatecalculations. Round your answer to 2 decimal places.)Call value

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Answered: We will derive a two-state call option…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 13QTD

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Suppose you came up with the following calculations; Assume your utlity function is represented by U E(Rp) 1/2A\sigma_p^2 where your risk aversion parameter A = 25. What is the weight that you must invest in Stock C in order to create your Optimal Portfolio? Present result in decimals, for example, 0.78, not 78 %. Round to 4 decimals. Your Answer: Answer
Data: S0 = 120; X = 126; 1+r = 1.05. The two possibilities for ST are 150 and 102. (Round to 2 decimal places). The range of S is 48 while that of C is 24 across the two states. What is the hedge ratio of the call? Hedge ratio ? Calculate the value of a call option on the stock with an exercise price of 126. (Do not use continuous compounding to calculate the present value of X in this example because we are using a two-state model here; the assumed 5% interest rate is an effective rate per period.) Call value ?
Data: S0 = 120; X = 126; 1 + r = 1.05. The two possibilities for ST are 150 and 102. Required: a-1. The range of S is 48 while that of C is 24 across the two states. What is the hedge ratio of the call? Note: Round your answer to 2 decimal places. a-2. Calculate the value of a call option on the stock with an exercise price of 126. (Do not use continuous compounding to calculate the present value of X in this example because we are using a two-state model here; the assumed 5% interest rate is an effective rate per period.) Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
Assume the APT equation for portfolios A and B with the following system of equations: E[rA] = λ0 + (λ1)3 + (λ2)0.2 = 11.0 E[rB] = λ0 + (λ1)2 + (λ2)1 = 13.0 Assume the following: . The risk free rate is λ0 = Rf = 5 . The expected return on the market portfolio is RM = 10 . Expected returns are consistent with the CAPM. . (hint: note that λ1 = E[RA] − Rf and λ2 = E[RB] − Rf ). Answer the following: (a) What are λ1 and λ2? (b) What is the CAPM β associated with the pure portfolio associated with factor 1? (c) What is the CAPM β associated with the pure portfolio associated with factor 2?
Let S = $100, K = $95, \sigma = 30%, r = 8%, T = 1, and \delta = 0. For simplicity, let u = 1.3, d = 0.8 and n = 2 (that is, 2 periods). When constructing the binomial tree for the European call option, what is A (Stock Share Purchased in the replicating portfolio) at the first node (Time 0)? Question 11 options: 0.1789 0.3886 1.0000 0.2550 0.6912
* Consider the following portfolio II: long one call with exercise price E₁, long one put with exercise price E2, short one call with exercise price E, and short one put with exercise price E1+E2 E. Consider the case E₁ < E < E2 where E < 2 ⚫ (a) Write down the pay-off function A(S) for the portfolio II. • • (b) What is the value of the pay-off function when S < E₁? (c) What is the value of the pay-off function when E < S < E₂?
1. Consider a one period binomial model. Suppose So = 1 att = To; and Su = 2 and Sd = ½ at time T₁. If we assume the risk free rate R is 1.2, compute the current value of a European put with strike K = 1. Please round your answer to 2 decimals. Enter answer here 2. Compute the number of units of stock we need to short in order to replicate the option in the previous question. Please round your answer to 2 decimals. Enter answer here 3. Use Black-Scholes Formula to calculate the call price of a European call option with: So = 20, K = 20, r = 5%, c = 0,0 = 40%, T = 5; (round to two decimal digits).
Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found to be halfof the required return (RB) on stock B. The risk-free rate (Rf) is one-fourthof the required return on A. Return on market portfolio is denoted by RM. Find the ratioof betaof A(A) tobeta of B(B). Thank you for your help.
Find a portfolio with payoff at time T equal to if 0 ≤ S(T) ≤ 10, if 10 ≤S(T) ≤ 30, if 30 ≤S(T). VT = 2ST + 30, -3ST+80, ST-40, Here, ST denotes the price of the underlying asset at time T. You can hold cash, the asset, calls, and puts.
Use the following CAPM equation for a portfolio to answer the questions that follow:E(RP) = RF + βP (RM – RF) = 1 + 0.8 (5 – 1) = 4.2% a) Is the portfolio defensive or aggressive. Why? b) If the actual portfolio return is 6%, what is the portfolio’s alpha?
You are given the following Information concerning three portfollos, the market portfolio, and the risk-free asset Portfolio Rp Op X 13.0% Y 12.0 Z Market Risk-free 7.2 11.0 5.6 24 ཝིཙྪཱཙྪལ༤ 39% 1.75 1.30 .85 1.00 0 What are the Sharpe ratio, Treynor ratio, and Jensen's alpha for each portfolio? (A negative value should be Indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round Intermediate calculations. Round your ratio answers to 5 decimal places. Enter your alpha answers as a percent rounded to 2 decimal places.) Portfolio Sharpe Ratio Treynor Ratio Jensen's Alpha X % Y % Z % Market %
Two call options, A and B, are on the same stock. Their hedge ratios are 0.4 and 0.6, respectively. If a riskfree portfolio of the two calls contains one Call A, then the portfolio needs to contain _______ Call Bs (use negative numbers to mean short positions. Keep 2 decimal places.)

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