Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Question
Chapter 13, Problem 11P
a:
To determine
Call option.
b:
To determine
Put option.
c:
To determine
New put option.
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b) A stock you are evaluating just paid an annual dividend of £2.50. Dividends
have grown at a constant rate of 1.5% over the last 15 years and you expect
this to continue.
i.
If the required rate of return on the stock is 12%, what is the fair
present value?
If the required rate of return on the stock is 15%, what should the
fair value be four years from today?
ii.
A risk free private bond with a face value of 10,000 will mature in 1 year. If the market interest rate is 25% then
a) the maximum price you are willing to pay for it is 5000.
b) you should buy if the price is higher than 9000.
c) you should buy if the price is lower than 5000
d) All of the answers are correct.
An FI has a $100 million portfolio of six-year Eurodollar bonds that have an 8 percent coupon. The bonds are trading at par and have a duration of five years. The FI wishes to hedge the portfolio with T-bond options that have a delta of –0.625. The underlying long-term Treasury bonds for the option have a duration of 10.1 years and trade at a market value of $96,157 per $100,000 of par value. Each put option has a premium of 3.25 (percent of $100,000). Bonds put options are necessary to hedge the bond 824
How far must interest rates move before the payoff on the hedge will exactly offset the cost of placing the hedge?
How far must interest rates move before the gain on the bond portfolio will exactly offset the cost of placing the hedge?
If interest rates increase 100 basis points, what is the expected gain or loss on the put option hedge?
Chapter 13 Solutions
Contemporary Engineering Economics (6th Edition)
Ch. 13 - Prob. 1PCh. 13 - Prob. 2PCh. 13 - Prob. 3PCh. 13 - Prob. 4PCh. 13 - Prob. 5PCh. 13 - Prob. 6PCh. 13 - Prob. 7PCh. 13 - Prob. 8PCh. 13 - Prob. 9PCh. 13 - Prob. 10P
Ch. 13 - Prob. 11PCh. 13 - Prob. 12PCh. 13 - Prob. 13PCh. 13 - Prob. 14PCh. 13 - Prob. 15PCh. 13 - Prob. 16PCh. 13 - Prob. 17PCh. 13 - Prob. 18PCh. 13 - Prob. 19PCh. 13 - Prob. 20PCh. 13 - Prob. 21PCh. 13 - Prob. 22PCh. 13 - Prob. 23PCh. 13 - Prob. 24PCh. 13 - Prob. 25PCh. 13 - Prob. 1STCh. 13 - Prob. 2STCh. 13 - Prob. 3STCh. 13 - Prob. 4ST
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