PRINCIPLES OF CORPORATE FINANCE
13th Edition
ISBN: 9781264052059
Author: BREALEY
Publisher: MCG
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Chapter 21, Problem 29PS
Option risk In Section 21-1, we used a simple one-step model to value two Amazon options each with an exercise price of $900. We showed that the call option could be replicated by borrowing $407.06 and investing $490.91 in .54545 share of Amazon stock. The put option could be replicated by selling short $409.10 of Amazon stock and lending $488.46.
- a. If the beta of Amazon stock is 1.5, what is the beta of the call according to the one-step model?
- b. What is the beta of the put?
- c. Suppose that you were to buy one call and invest the
present value of the exercise price in a bank loan. What would be the beta of your portfolio? - d. Suppose instead that you were to buy one share and one put option of Amazon. What would be the beta of your portfolio now?
- e. Your answers to parts (c) and (d) should be the same. Explain.
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Chapter 21 Solutions
PRINCIPLES OF CORPORATE FINANCE
Ch. 21 - Binomial model Over the coming year, Ragworts...Ch. 21 - Binomial model Imagine that Amazons stock price...Ch. 21 - Prob. 3PSCh. 21 - Binomial model Suppose a stock price can go up by...Ch. 21 - Prob. 6PSCh. 21 - Two-step binomial model Suppose that you have an...Ch. 21 - Prob. 8PSCh. 21 - Option delta a. Can the delta of a call option be...Ch. 21 - Option delta Suppose you construct an option hedge...Ch. 21 - BlackScholes model Use the BlackScholes formula to...
Ch. 21 - Option risk A call option is always riskier than...Ch. 21 - Option risk a. In Section 21-3, we calculated the...Ch. 21 - Prob. 16PSCh. 21 - Prob. 18PSCh. 21 - American options The price of Moria Mining stock...Ch. 21 - American options Suppose that you own an American...Ch. 21 - American options Recalculate the value of the...Ch. 21 - American options The current price of the stock of...Ch. 21 - American options Other things equal, which of...Ch. 21 - Option exercise Is it better to exercise a call...Ch. 21 - Option delta Use the put-call parity formula (see...Ch. 21 - Option delta Show how the option delta changes as...Ch. 21 - Dividends Your company has just awarded you a...Ch. 21 - Option risk Calculate and compare the risk (betas)...Ch. 21 - Option risk In Section 21-1, we used a simple...Ch. 21 - Prob. 30PS
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