Why would an invester choose to use the put-call parity model? Is this a good option pricing strategy
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Why would an invester choose to use the put-call parity model? Is this a good option pricing strategy?
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- b) Explain what is meant by the internal rate of return (IRR) in the context of project appraisal. What are the drawbacks of the IRR method?Amber purchased the August call option on Swiss francs with a strike price of $0.65/SF, paying a premium of $0.26/SF. When the spot rate is $0.85/SF, is Amber's call option at-the money (ATM), in-the-money (ITM), or out-of-the-money (OTM)? Why?Why is the cost of financing a project with retained earnings lessthan the cost of financing it with a new issue of common stock?
- 3. A hedge fund has two trading desks (A and B ) which have different traders with different trading strategies. The hedge fund has up to $10 million in total which it can allocate to the two desks for them to start investing. However, it can only allocate at most $7 million to each desk to follow the diversification information given to investors. After 1 year, it is expected that desk A will make a 5% return (i.e. for every $1 in initial funding it will end with $1.05 for a profit of $0.05) and desk B will make a 10% return. However, for every $1 million in initial funding, desk A requires 3 support staff (for trade execution, risk management, IT, etc) and desk B requires 5 support staff. There are only 40 support staff available. (a) Formulate an LP problem to determine how the fund should best allocate its initial funding to maximise the profit in the first year. (b) Solve the hedge fund's problem using the simplex method. (c) By considering the optimum of the dual problem,…savings banks are permitted to sell life insurance. The approval process consists of underwriting, which includes a review of the application, a medical information bureau check, possible requests for additional medical information and medical exams, and a policy compilation stage, in which the policy pages are generated and sent to the bank for delivery. The ability to deliver approved policies to customers in a timely manner is critical to the profitability of this service to the bank. Using the DCOVA framework you define the variable of interest as the total processing time in days. You collect the data by selecting a random sample of 27 approved policies during a period of one month. You organize the data collected in a worksheet and store them in 73 19 16 64 28 28 31 90 60 56 31 56 22 18 45 48 17 17 17 91 92 63 50 51 69 16 17 a. Compute the mean, median. b. Compute the range, variance, standard deviation, and coefficient of variation. c. What would you tell a customer who enters…APC industries has been experiencing significant growth and has been having difficulty meeting customer demands recently. They are considering three options to address this issue. They can move to a larger facility, add a second shift or use a subcontractor to assist in production. The annual payoff ofeach option depends on if the current market continues to expand hold s steady or decline. The expected payoff for each combination is shown in the table below Option Expand Steady Decline Move to larger city 250,000 125,000 -90,000 Add a second shift 175,000 80,000 -45,000 Subcontract 90,000 15,000 -10,000 What are the most that the APC should be willing to pay for additional information? UseExpected Regret Use the alternative method to verify EVPI
- Keystone can only properly market a limited number of properties. They are trying to figure out which property they should select to add to their portfolio among four candidates (and in so doing, gain some insight into how to make such decisions in the future). There is some uncertainty as the selling price (and therefore commission/profit) depends on the state of the real estate market 6 months in the future. Based on their experience, Keystone has provided an estimate of selling prices for a “good” real estate market and a “bad” real estate market for the four candidate properties (see Table 1). Table 1: Sales price (in millions of $) Alternatives Bad Market Good Market Property 1 2.1 3.7 Property 2 1.7 3.8 Property 3 2.8 2.6 Property 4 2.2 2.4 Even with these estimates, though, Keystone managers are unsure which property to choose. Keystone managers consider themselves to be optimistic about the future, but would like to…UG can only properly release a limited number of games, even though they have a number of candidates in development. They are trying to figure out which game they should release next quarter among four possibilities (and in so doing, gain some insight into how to make such decisions in the future). There is some uncertainty as the projected profitability of the release depends on the state of the gaming market 6 months in the future. Based on their experience, UG has provided an estimate of profit for a “good” gaming market and a “bad” gaming market for the four candidate games (see below). Even with these estimates, though, UG managers are unsure which game to choose. UG managers consider themselves to be optimistic about the future but would like to consider a large variety of ways to make this decision. When asked how likely they think it is that the market will be good, UG said “about a 65% chance”. UG mentioned that they are curious about “opportunity loss”, but they have…3. An investment broker wants to invest up to $20,000. She can purchase type A bond yielding a 10% return and she can purchase a riskier type B bond yielding a 15% return. She wants to invest at least as much in the type A bond as in the type B bond to reduce her risk. The minimum investment for the type A bond is $5,000, and there are only $8,000 worth of type B bonds available. How much should the broker invest in each type of bond to maximize her returns?
- Premise: Price controls (price floor/ceiling) create black markets. 1. Do you agree with this stance? Why? 2. Do black markets affect GDP? Explain your answers with good economic basis.1. Redback Industries is a relatively small but successful and fast-growing maker of peripheral devices for cell phones including battery chargers, enhanced antennas, SIM cards, and custom carrying cases. Costco is considering purchasing Redback in order to sell the devices as private label offerings. However, Costco has set an offer price of $ 600M that depends on whether Redback’s current Annual Net Income is higher and significantly different from its 14-year average of $ 104.5M per year; Redback has indicated it is willing to sell itself to Costco at the $600M price. Use the following information to determine at the 95 % Level Of Confidence whether Costco will proceed with the purchase at the planned price of $ 600M or will lower its offering price if Redback’s current Annual Net Income is not greater than $ 104.5M per year. Redback Industries Normalized Yearly Annual Net Income over the last 14 years is $ 104.5M Redback Industries is currently reporting Yearly Annual Net…The Harriet Hotel in downtown Boston has 100 rooms that rent for $150 per night. It costs the hotel $30 per room in variable costs (cleaning, bathroom items, etc.) each night a room is occupied. For each reservation accepted, there is a 5% chance that the guest will not arrive. If the hotel overbooks, it costs $200 to compensate guests whose reservations cannot be honored. How many reservations should the hotel accept if it wants to maximize the average daily profit?
