Consider the following data for a certain share. Current Price So = Rs. 80 Exercise Price = E = Rs. 90 Standard deviation of continuously compounded annual return = 0 = 0.5 Expiration period of the call option 3 months Risk – free interest rate per annum = 6 percent a. What is the value of the call option? Use the normal distribution table. b. What is the value of a put option?

Consider the following data for a certain share. Current Price So = Rs. 80 Exercise Price = E = Rs. 90 Standard deviation of continuously compounded annual return = 0 = 0.5 Expiration period of the call option 3 months Risk – free interest rate per annum = 6 percent a. What is the value of the call option? Use the normal distribution table. b. What is the value of a put option?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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The following information is provided: The risk-free rate is 2% The expected market returns are 11% If the beta of an asset changes from 0.8 to 1.5, what is the additional return that you require on this asset (in %, please round on 2 decimals)?
Suppose risk-free rate of return = 2%, market return = 7%, and Stock B’s return = 11%. Calcuate Stock B’s beta. If Stock B’s beta were 0.80, what would be its new rate of return?
Assume an interest rate of zero. A Call option and a Put option with the same exercise price, X = 100p are priced at 9p for the Call and 4p for the Put. By completing the table below (attached) show that the net position at expiry is zero.
please answer as soon as possible?
Assume the one period binomial model with initial share price £400, up and down factors u = 1.25, d = 0.9 and interest compounded at nominal rate (per time period) of 5%. Consider an option with payoff (S(0) + S(1))/2. The replicating portfolio for this option at time 0 will have shares and pounds in a bank. State your answers to three significant figures.
Stock A has an expected return of 13.52 percent. Stock B has an expected return of 9.24 percent. Assuming the Capital Asset Pricing Model holds, and Stock A's beta is greater than Stock B's beta by 0.32, what is the expected market risk premium (in percent)? Answer to two decimals
Data: S0 = 102; X = 115; 1 + r = 1.1. The two possibilities for ST are 146 and 84. Required: The range of S is 62 while that of P is 31 across the two states. What is the hedge ratio of the put? Form a portfolio of one share of stock and two puts. What is the (nonrandom) payoff to this portfolio? What is the present value of the portfolio? Given that the stock currently is selling at 102, calculate the put value.
Suppose you have the following information concerning a particular options.Stock price, S = RM 21Exercise price, K = RM 20Interest rate, r = 0.08Maturity, T = 180 days = 0.5Standard deviation,= 0.5 a. What is correct of the call options using Black-Scholes model? * Look for N(d1) and N(d2) from the cumulative standard normal distribution table:
What is portfolio A's CAPM beta based on your analysis? Round off your answer to three digits after the decimal points. State your answer as a percentage point as 1.234. Compute the Treynor measure for portfolio B. Round off your answer to three digits after the decimal point. State your answer as 1.234
Consider the 1-period binomial model with a bond with A(0) = 60 and A(1) = 70 and a stock with S(0) = 4X and S^u(1) 6Y and S^d(1) = 3Z. = 1. What is the price (payoff) C(1) of a call option with strike price 28? 2. same... with strike price 45? 3. same... with strike price 72? 4. Set up a system of linear equations to determine a replicating portfolio for the call option from part 2 (strike price 45). 5. Solve it and determine the price C(O). 6. Compute, tabulate, and plot the price C(O) as you vary the strike price of the option from 28, 29, ..., 71, 72.
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 .
Construct a hedge portfolio and by using the binomial option pricing model and find the values of Pu and Pd; and P. Explain the answer and describe the hedge portfolio. A stock currently priced at $100. One period later it can go up to $125, an increase of 25 percent, or down to $80, a decrease of 20 percent. Assume a put option is available with an exercise price of $100. Consider the example in a two-period world. The risk-free rate is 7 percent. The inputs are summarized as follows S = 100 d = 0.80 u = 1.25 X= 100 r = 0.07

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