Corporate Finance
Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Chapter 21, Problem 18P

Consider again the at-the-money call option on Roslin Robotics evaluated in Problem 11. What is the impact on the value of this call option of each of the following changes (evaluated separately)?

  1. a. The stock price increases by $1 to $61.
  2. b. The volatility of the stock goes up by 1% to 31%.
  3. c. Interest rates go up by 1% to 6%.
  4. d. One month elapses, with no other change.
  5. e. The firm announces a $1 dividend, paid immediately.
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Consider the three calls from the previous problem expiring in T = 1 year. Suppose that the premium of the three options are $7, $3, $1 for A, B, and C, respectively, today (time 0). Suppose the price on the stock today is $14. Suppose the risk-free rate is constant at 5%. Graph the profit function for the butterfly strategy at time T taking into consideration the time value of the initial cost. By how much would the asset have to change over the year for your butterfly portfolio to be a loss?
solve a,b,c and d please. round to nearest dollar
solve a,b,c and d please

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Corporate Finance

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