Consider a stock currently priced at $40. Assume that in each period of one month, the stock could either appreciate or depreciate by 10%. The risk - free rate is 2% per annum. What would be the value of a 2 - month ATM Asian put?
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- Suppose that a Stock has a current price of $40 and that in 6-months it may go up by 20% or down by 15%. Assuming the annual risk-free rate is 3%, compounded semi-annually, answer the following: a) Calculate the value of a $35 Call with two 6-month periods (i.e. 12-months) to expiry using the Risk Neutral Approach. b) Calculate the value of a $35 Put using Put-Call Parity. c) Without performing any calculations, explain in 1-2 sentences what you would expect to happen to the value of the Call and Put if the Exercise Price decreased. d) Do this question in the blank space below - i.e. DO NOT answer this sub-part (d) in Excel. Only your solution written below will be marked: Suppose the market price of a 12-month Call with an exercise price of $35 is $6.00. The Put price is as you calculated in (b) above. Using a payoff table, illustrate an arbitrage opportunity as a result of the mispricing of the Call. Show your workings to 3 decimal places. (If you need more space, please use the back…Suppose investors can earn a return of 4.5% per 6 months on a Treasury note with 6 months remaining until maturity. The face value of the T-bill is $10,000. What price would you expect a 6-month-maturity Treasury bill to sell for?The current spot price of a stock is $89.00, the expected rate of return is 9.8%, and the volatility of the stock is 18%. The risk-free rate is 3.3%. Assume the log-normal model. (a) Calculate the Delta A. and Vega v. of a European call with strike $94.00 expiring in 14 months. Enter your solution for A, to three decimal places. Enter your solution for v. as a dollar value to two decimal places. Ac = Vc = (b) Calculate the Delta A, and Vega v, of a European straddle with strike $94.00 expiring in 14 months. Enter your solution for As to three decimal places. Enter your solution for v, as a dollar value to two decimal places. As =
- Consider an underlying stock worth $100 today and will either increase by 25 % or decrease by 20 % in value in six months. In the following six months, it will either increase by 25 % or decrease by 20 %. The risk-free rate semi-annually is 1 %. a ) What is the price of a European put with a strike price of $ 105? b ) What is the price of an American put with a strike price of $ 105?Suppose investors can earn a return of 1.9% per 6 months on a Treasury note with 6 months remaining until maturity. The face value of the T-bill is $10,000. What price would you expect a 6-month maturity Treasury bill to sell for? (Round your answer to 2 decimal places.)Suppose investors can earn a return of 2% per 6 months on a Treasury note with 6 months remaining until maturity. What price would you expect a 6-month maturity Treasury bill to sell for?
- Suppose you buy OMR2000 worth of stock on margin. The initial margin is 60% and the maintenance margin is 30%. a. How much have you borrowed? What is your equity? b. Suppose the value of the stock rises by 15% to OMR2300. What is the return on your investment? c. Suppose the value of the stock falls by 15% to OMR1700. What is the return on your investment? d. Does buying a stock on margin increase or decrease your risk of investment? Use the results in parts b and c to answer the question.Suppose you have $100,000 in cash, and you decide to borrow another $25,000 at a 6% interest rate to invest in the stock market. You invest the entire $125,000 in a portfolio J with a 24% expected return and a 26% volatility. What is the expected return and volatility (standard deviation) of your investment? What is your realized return if J goes up 13% over the year? What return do you realize if J falls by 26% over the year?The stock price is currently $30. Each month for the next two months it is expected to increase by 8% or reduce by 10%. The risk-free interest rate is 5%. Use a two-step tree to calculate the value of a derivative that pays off [max(30 — St； 0)]2, where St is the stock price in two months? If the derivative is American-style, should it be exercised early?
- Suppose you have $375,000 in cash, and you decide to borrow another $63,750 at a 7% interest rate to invest in the stock market. You invest the entire $438,750 in a portfolio J with a 20% expected return and a 28% volatility. a. What is the expected return and volatility (standard deviation) of your investment? b. What is your realized return if J goes up 39% over the year? c. What return do you realize if J falls by 19% over the year?problems should be solved by using a financial calculator or MS excel spreadsheet. Accordingly, you must show the values of all relevant time valu of money variables ABC stock selss for $60.25 per shar. Its required rate of return is 10.25%. The dividend is expected to grow at a constant rate of 7.00% per year. What is the expected year-end dividend, D1?Suppose you have $200,000 in cash, and you decide to borrow another $24,000 at a 6% interest rate to invest in the stock market. You invest the entire $224,000 in a portfolio J with a 21% expected return and a 27% volatility. a. What is the expected return and volatility (standard deviation) of your investment? b. What is your realized return if J goes up 39% over the year? c. What return do you realize if J falls by 35% over the year? a. What is the expected return and volatility (standard deviation) of your investment? The expected return of your investment is ☐ %. (Round to two decimal places.)