onsider the following information on a particular stock: Stock price = $88 Exercise price = $84 Risk-free rate = 5% per year, compounded continuously Maturity = 11 months Standard deviation = 53% per year. What What is the delta of a call optio

onsider the following information on a particular stock: Stock price = $88 Exercise price = $84 Risk-free rate = 5% per year, compounded continuously Maturity = 11 months Standard deviation = 53% per year. What What is the delta of a call optio

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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Question

Consider the following information on a particular stock:
Stock price = $88
Exercise price = $84
Risk-free rate = 5% per year, compounded continuously
Maturity = 11 months
Standard deviation =
53% per year. What What is the delta of a call option?

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Consider a certain butterfly spread on American International Group stock (AIG): this is a portfolio that is long one call at $50, long one call at $70, and short 2 calls at $60. Assume expiration of all options s at the same timet=T. (@) Graph the payoff of this portfolio at expiration T as a function of the stock price ST of AIG. (b) If today the calls cost $13.10, $5.00, and $1.00 for the strikes at 50, 60, and 70, respectively, what will be the profit or loss (PnL) from buying this spread if the stock turns out to be trading at S5 at time T2 at $35? Assume the risk-free rate is 0%,
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Required: Investors expect the market rate of return this year to be 19.00%. The expected rate of return on a stock with a beta of 1.2 is currently 22.80%. If the market return this year turns out to be 17.60%, how would you revise your expectation of the rate of return on the stock? (Do not round intermediate calculations. Round your answer to 1 decimal place.) Revised rate of return %
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