You are evaluating a put option based on the following information: P = Ke-#.N(-d,) – S-N(-d,) Stock price, So Exercise price, k = RM 11 = RM 10 = 0.10 Maturity, T = 90 days = 0.25 Standard deviation, o = 0.5 Interest rate, r Calculate the fair value of the put based on Black-Scholes pricing model. Cumulative normal distribution table is provided at the back.

You are evaluating a put option based on the following information: P = Ke-#.N(-d,) – S-N(-d,) Stock price, So Exercise price, k = RM 11 = RM 10 = 0.10 Maturity, T = 90 days = 0.25 Standard deviation, o = 0.5 Interest rate, r Calculate the fair value of the put based on Black-Scholes pricing model. Cumulative normal distribution table is provided at the back.

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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Baghiben
Help me with part E please. Thank you so much a) Discuss the main assumptions of the Capital Asset Pricing Model (CAPM). (b) Write the equation of the Security Market Line (SML). Compute and draw theSML when the expected return of the NASDAQ index (market portfolio) is17% and the return to the risk-free asset is 7%. (c) Given the SML in (b), compute the beta and the expected return of the newshare Facebook assuming the volatility of the NASDAQ index (market portfolio) is 23.86% and its covariance with the share is 0.0655. (d) Facebook pays a dividend of 5 GBP and the growth of dividends is equal to 4%for the first two years and then rise to 6%. Assuming constant cost of capitalas computed in point (c), estimate the price of the Facebook share. (e) Consider investing 20% of your wealth in the Facebook share with beta as in, What is the proportion you need to allocate to the Apple share with beta1.8 in order to replicate the market portfolio?
Call options on a stock are available with strike prices of $15, $17.5 and $20 before expiration date. The call premiums for each are $4, $2 and $0.5 respectively. Explain how the options can be used to create a butterfly spread. A. Construct a table showing how profit varies with stock price for the butterfly spread. B. Plot the profit with stock price for the butterfly spread. List the profit formula for each trend.
Assume an interest rate of zero. A Call option and a Put option with the same exercise price, X = 100p are priced at 9p for the Call and 4p for the Put. By completing the table below (attached) show that the net position at expiry is zero.
Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, rƒ. The characteristics of two of the stocks are as follows: Stock Expected Return Standard Deviation A 8% 55% B 4% 45% Correlation = −1 Required: a. Calculate the expected rate of return on this risk-free portfolio? (Hint: Can a particular stock portfolio be formed to create a “synthetic” risk-free asset?) (Round your answer to 2 decimal places.) b. Could the equilibrium rƒ be greater than rate of return?
You are facing three stock investment alternatives, Stock A, Stock B and Stock C. Given the following information, please indicate which stock is (are) overvalued, which stock is (are) undervalued, and which stock is (are) correctly priced based on the required returns calculation using the Capital Asset Pricing Model (CAPM or Security Market Line=SML). The risk free rate is 3% and the risk premium for the market index return is 5%. Please Show Work Expected Stocks Returns BETA A 14% 1.2 B 8% 0.67 C 20% 2.5
Portfolio Suppose rA ~ N (0.05, 0.01), rB ~ N (0.1, 0.04) with pA,B = 0.2 where rA and rB are CCR’s. a) Suppose you construct a portfolio with 50% for A and 50% for B. Find the variance of the portfolio CCR. b) Find the portfolio expected gross return. c) Find the expected portfolio CCR.
help me with part C please. thank you so much (a) Discuss the main assumptions of the Capital Asset Pricing Model (CAPM). (b) Write the equation of the Security Market Line (SML). Compute and draw theSML when the expected return of the NASDAQ index (market portfolio) is17% and the return to the risk-free asset is 7%. (c) Given the SML in (b), compute the beta and the expected return of the newshare Facebook assuming the volatility of the NASDAQ index (market portfolio) is 23.86% and its covariance with the share is 0.0655.
Suppose you have the following information concerning a particular options.Stock price, S = RM 21Exercise price, K = RM 20Interest rate, r = 0.08Maturity, T = 180 days = 0.5Standard deviation,= 0.5 a. What is correct of the call options using Black-Scholes model? * Look for N(d1) and N(d2) from the cumulative standard normal distribution table:
Consider the 1-period binomial model with a bond with A(0) = 60 and A(1) = 70 and a stock with S(0) = 4X and S^u(1) 6Y and S^d(1) = 3Z. = 1. What is the price (payoff) C(1) of a call option with strike price 28? 2. same... with strike price 45? 3. same... with strike price 72? 4. Set up a system of linear equations to determine a replicating portfolio for the call option from part 2 (strike price 45). 5. Solve it and determine the price C(O). 6. Compute, tabulate, and plot the price C(O) as you vary the strike price of the option from 28, 29, ..., 71, 72.
Nikul
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 %

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