Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Textbook Question
Chapter 21, Problem 20P
Using the information on Harbin Manufacturing in Problem 19, answer the following:
- a. Using the risk-neutral probabilities, what is the value of a one-year call option on Harbin stock with a strike price of $25?
- b. What is the expected return of the call option?
- c. Using the risk-neutral probabilities, what is the value of a one-year put option on Harbin stock with a strike price of $25?
- d. What is the expected return of the put option?
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Consider shorting a call option c on a stock S where S = 24 is the value of the stock, K = 30 is the strike price, T = ½ is the expiration date, r = 0.04 is the continuously compounded interest rate per year, and = 0.3 is the volatility of the price of the stock. Determine the delta ratio Δ .
Label the following for this diagram:
a. Name of options payoff
b. Identify whether positive or negative premium
c. Identify breakeven point
d. What is the profit or loss when stock price is S60 at maturity
e. Suppose you have this options position, should you exercise your right (if any) assuming that the stock price is $60 at maturity?
Option Payoffs and Profits Long put
$40
$20
$0
Option Payoff
Option Profit
Exerche Price
$20
S40
$20
$40
S60
$80.
Stock Price At Maturity
Payoff and Profit
Which of the following is not a determinant of the value of a call option in the Black-Scholes model?
A. The interest rate.
B. The exercise price of the stock.
C. The price of the underlying stock.
D. The beta of the underlying stock.
Need typed answer only.Please give answer within 45 minutes
Chapter 21 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 21.1 - What is the key assumption of the binomial option...Ch. 21.1 - Why dont we need to know the probabilities of the...Ch. 21.1 - Prob. 3CCCh. 21.2 - What are the inputs of the Black-Scholes option...Ch. 21.2 - What is the implied volatility of a stock?Ch. 21.2 - How does the delta of a call option change as the...Ch. 21.3 - What are risk-neutral probabilities? How can they...Ch. 21.3 - Does the binominal model or Black-Scholes model...Ch. 21.4 - Is the beta of a call greater or smaller than the...Ch. 21.4 - What is the leverage ratio of a call?
Ch. 21.5 - Prob. 1CCCh. 21.5 - The fact that equity is a call option on the firms...Ch. 21 - The current price of Estelle Corporation stock is...Ch. 21 - Using the information in Problem 1, use the...Ch. 21 - Suppose the option in Example 21.11 actually sold...Ch. 21 - Eagletrons current stock price is 10. Suppose that...Ch. 21 - What is the highest possible value for the delta...Ch. 21 - Hema Corp. is an all equity firm with a current...Ch. 21 - Consider the setting of Problem 9. Suppose that in...Ch. 21 - Roslin Robotics stock has a volatility of 30% and...Ch. 21 - Rebecca is interested in purchasing a European...Ch. 21 - Using the data in Table 21.1, compare the price on...Ch. 21 - Consider again the at-the-money call option on...Ch. 21 - Harbin Manufacturing has 10 million shares...Ch. 21 - Using the information on Harbin Manufacturing in...Ch. 21 - Using the information in Problem 1, calculate the...Ch. 21 - Prob. 23PCh. 21 - Prob. 24PCh. 21 - Calculate the beta of the January 2010 9 call...Ch. 21 - Consider the March 2010 5 put option on JetBlue...
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