INVESTMENTS-CONNECT PLUS ACCESS
INVESTMENTS-CONNECT PLUS ACCESS
11th Edition
ISBN: 2810022611546
Author: Bodie
Publisher: MCG
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Chapter 22, Problem 3CP
Summary Introduction

To explain: The Comparison between futures contract and option contract and also explain that portfolio risk which can be modified by both.

Introduction: When the commodities are buying or selling at a predetermined value but for the future time this dealing is called future trading but call option provides a right to the buyer. If the trading conditions are not profitable then he will not exercise the option price.

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A company currently pays a dividend of $3.6 per share (D0 = $3.6). It is estimated that the company's dividend will grow at a rate of 19% per year for the next 2 years, and then at a constant rate of 6% thereafter. The company's stock has a beta of 1.4, the risk-free rate is 8.5%, and the market risk premium is 4.5%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer to the nearest cent.
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