EBK CORPORATE FINANCE
EBK CORPORATE FINANCE
4th Edition
ISBN: 9780134202785
Author: DeMarzo
Publisher: VST
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Chapter 21, Problem 20P

Using the information on Harbin Manufacturing in Problem 19, answer the following:

  1. 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?
  2. b. What is the expected return of the call option?
  3. 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?
  4. 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

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EBK CORPORATE FINANCE

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