Personal Finance
7th Edition
ISBN: 9780134989969
Author: Madura, Jeff
Publisher: Pearson,
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Chapter 19, Problem 4FPP
Summary Introduction
To determine: Amount at the time of retirement.
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Assume a volatility of 25%. What is going to be the hedging ratio for a replicating portfolio for an option that pays $0$ in the case of good state of the world and $2$ in the BAD state of the world. Assume the option expires in half a year and the current stock price is 20$ ( Hint: form the replicating portfolio and calc the alpha for this payoff )
p.s. Don't chase bps !!
-0.28
-0.14
-0.89
NONE OF THE ABOVE
What is the up movement of a tree with 3 month step expiry one year the current price of the tree is 60 and vol is 30%
109.33
109.01
108.78
NONE OF THE ABOVE
Chapter 19 Solutions
Personal Finance
Ch. 19 - Prob. 1RQCh. 19 - Prob. 2RQCh. 19 - Prob. 3RQCh. 19 - Prob. 4RQCh. 19 - Prob. 5RQCh. 19 - Prob. 6RQCh. 19 - Prob. 7RQCh. 19 - Prob. 8RQCh. 19 - Prob. 9RQCh. 19 - Prob. 10RQ
Ch. 19 - Prob. 11RQCh. 19 - Prob. 12RQCh. 19 - Prob. 13RQCh. 19 - Prob. 14RQCh. 19 - Prob. 15RQCh. 19 - Prob. 16RQCh. 19 - Prob. 17RQCh. 19 - Prob. 18RQCh. 19 - Prob. 19RQCh. 19 - Prob. 20RQCh. 19 - Prob. 21RQCh. 19 - Prob. 22RQCh. 19 - Prob. 23RQCh. 19 - Prob. 24RQCh. 19 - Prob. 25RQCh. 19 - Prob. 26RQCh. 19 - Prob. 27RQCh. 19 - Prob. 1FPPCh. 19 - Prob. 2FPPCh. 19 - Retirement Funding. How much would Barry have if...Ch. 19 - Prob. 4FPPCh. 19 - Prob. 5FPPCh. 19 - Prob. 6FPPCh. 19 - Prob. 7FPPCh. 19 - Prob. 8FPPCh. 19 - Prob. 9FPPCh. 19 - Prob. 10FPPCh. 19 - Prob. 11FPPCh. 19 - Prob. 12FPPCh. 19 - Prob. 13FPPCh. 19 - Prob. 14FPP
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- Assume a volatility of 25%. What is going to be the hedging ratio for a replicating portfolio for an option that pays $1$ in the case of good state of the world and $0$ in the bas state of the world. Assume the option expires in half a year and the current stock price is 20$ 0.07 0.14 0.25 NONE OF THE ABOVEarrow_forwardAssume you know the ZC value with principal of 11$ is worth 5$ now. What is the put option value expiring at the same time of this ZC ( I did it in class when I discussed ZC) 6 7 5 NONE OF THE ABOVEarrow_forwardwhat is going to be the hedge ratio of American put option that expires in one year modeled with a binomial tree of 3 months step with year to expiry? assume the underlying is oil future with RF of 5% and vol of oil is 30%. Strike is 70 and price is 60 of oil. -0.63 -0.7 -0.76arrow_forward
- what is going to be the sign of the alpha in a put replicating portfolio for a tree NEGATIVE POSITiVE SOMETIMES POSITIVE SOMETIMES NEGATIVE NONE OF THDE ABOVEarrow_forwardWhat is corporate finance? can you help me in this question?arrow_forwardwhat is going to be the value of American put option that expires in one year modeled with a binomial tree of 3 months step with year to expiry? assume the underlying is oil future with RF of 5% and vol of oil is 30%. Strike is 70 and price is 60 of oil. 13.68 13.44 13.01arrow_forward
- finance problem i need help step by step..arrow_forwardSuppose that you are a U.S.-based importer of goods from the United Kingdom. You expect the value of the pound to increase against the U.S. dollar over the next 30 days. You will be making payment on a shipment of imported goods in 30 days and want to hedge your currency exposure. The U.S. risk-free rate is 5.5 percent, and the U.K. risk-free rate is 4.5 percent. These rates are expected to remain unchanged over the next month. The current spot rate is $1.90. 1.Move forward 10 days. The spot rate is $1.93. Interest rates are unchanged. Calculate the value of your forward position. Do not round intermediate calculations. Round your answer to 4 decimal places.arrow_forwardDon't solve. I mistakenly submitted blurr image please comment i will write values. please dont Solve with incorrect values otherwise unhelpful.arrow_forward
- The image is blurr please comment i will write values. please dont Solve with incorrect values otherwise unhelpful.arrow_forwardQuestion 6 A five-year $50,000 endowment insurance for (60) has $1,000 underwriting expenses, 25% of the first premium is commission for the agent of record and renewal expenses are 5% of subsequent premiums. Write the gross future loss random variable: Presuming a portfolio of 10,000 identical and independent policies, the expected loss and the variance of the loss of the portfolio are given below (note that the premium basis is not given or needed): E[L] = 10,000(36,956.49 - 3.8786P) V[L] 10,000 (50,000 + 14.52P)². 0.00095 Find the premium that results in a 97.5% probability of profit (i.e. ¹ (0.975) = 1.96). Premium: Please show your work belowarrow_forwardWhat corporate finance?? can you explain this? fully no aiarrow_forward
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