We will derive a two-state put option value in this problem. Data: S = $130; X = $140; 1+r=1.10. The two possibilities for ST are $170and $95.Required:a. The range of S is $75 while that of P is $45 across the two states. What is the hedge ratio of the put? (Negative value should beindicated by a minus sign. Round your answer to 2 decimal places.)Hedge ratioesb. Form a portfolio of three shares of stock and five puts. What is the (nonrandom) payoff to this portfolio? (Round your answer to 2decimal places.)Nonrandom payoffc. What is the present value of the portfolio? (Round your answer to 2 decimal places.)Present value

Step 1: Compute for the hedge ratio Hedge ratio is the ratio or comparative value of an open…

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

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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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 the attached option pricing model and related data K = 45; St = 40 t = 4/12; r =03; SD/σ = 0.4; N = 0.07, calculate the value of the call option
The Black-Scholes equation for the value of an option V(S,t), where S is the value of the underlying asset and t is time, can be transformed into the diffusion equation for a new variable u(x,7) using S = Ee™, t = T − 27/0², k = 2r/o² and - (k-1) x (k+1)² + T V=Eu(x,T) exp 2 4 where r is the risk-free interest rate, σ is the volatility, E is the strike price, and T is the expiry date. The diffusion equation has the solution u(x,T): = 1 TT or L 2√Tπ 1 uo (s) exp 4T : (x - s)²) ds. Determine, showing all steps, the function uo(s) for a European asset- or-nothing call with the pay-off A(S) = SH(S – E). -
I need solution....
Compute the (1) net present value, (2) profitability index, and (3) internal rate of return for each option. (Hint: To solve for internal rate of return, experiment with alternative discount rates to arrive at a net present value of zero.) (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answers for present value and IRR to 0 decimal places, e.g. 125 and round profitability index to 2 decimal places, e.g. 12.50. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Option A Option B $ $ LA Net Present Value Profitability Index Internal Rate of Return % %
Suppose the nominal rate of return is 0.085 and the risk-free rate is 0.010. What is the risk premium? Instruction: Round to two decimal places. E.g., if your answer is 0.0106465 or 1.06465%, you should type ONLY the number .01, neither 0.0106465, 0.0106, nor 1.065. Otherwise, Blackboard will treat it as a wrong answer.
Consider the following payoff table: DA: Decision Alternative. Decision Alternative Good Bad Probabilities State of Nature 0.6 DA1 -3.22 DA2 13.80 DA3 3.75 DA4 4.06 6.33 What is the Expected value under perfect Information (EVUPI)? (Please keep 2 decimals for your answer) Your Answer: Answer 0.4 5.21 -5.40 6.00
You are using a two-step binomial tree to estimate the price of a put option on MCD. The strike price of the put option is $22. The price of MCD today is $32. The risk-free rate is 5%. What is the price of the put? Round your solution to the nearest three decimals if needed (Le. 2.312). Please do not type the $ symbol. u-3 d= 0.59 Click on the arrow next to the file below. Next, create a new sheet in the Respondus LockDown Browser spreadsheet. You can use this blank spreadsheet to calculate the answer. Blank Spreadsheet.xisx
Need help solving this, please explain kn detail if possible.
The future value interest factor is calculated as: Select one: O a. None of the other options are correct O b. (1 + r)(t)
The hedge ratio of an at-the-money call option on IBM is 0.36. The hedge ratio of an at-the-money put option is -0.64. What is the hedge ratio of an at-the-money straddle position on IBM? (Negative answer should be indicated by a minus sign. Round your answe to 2 decimal places.) Hedge ratio
What is the Delta of an at-the-money binary option with a payoff 0 at < $100, and payoff 1 at ≥ $100, as it approaches expiry?

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