Problem 2. (Black-Scholes formula, 12') Use the Black-Scholes formula for calculations and show your steps. When evaluating N(z), use the values in the attached N(z) table. a. What is the price of a $35 strike European call? Assume the current stock price is $38.50, the annual volatility is 0.25, the annualized continuously compounding interest rate is 6%, the stock pays no dividend, and the option expires in 45 days (assume 365 days a year). (6') b. What is the price of a $30 strike European put? Assume the current stock price is $28.50, the annual volatility is 0.32, the annualized continuously compounding interest rate is 0.04, the stock pays a 1.0% continuous dividend, and the option expires in 110 days. (Assume 365 days a year). (6')

Suppose your expectations regarding the stock price are as follows: State of the Market Probability Ending Price HPR (including dividends) Boom 0.35 $140 44.5% Normal growth 0.30 110 14.0 Recession 0.35 80 -16.5 Use the following equations to compute the mean and standard deviation of the HPR on stocks:

I need both answers

Suppose your expectations regarding the stock market are as follows: State of the Economy Boom Normal growth Recession Probability 0.3 0.4 0.3 Mean Standard deviation E (r) Σ=1p(s)r(s) Var (r) = o² = Σ³-1 P (s)[r (s) — E (r)]² - SD (r) = o = √Var (r) Required: Use above equations to compute the mean and standard deviation of the HPR on stocks. (Do not round intermediate calculations. Round your answers to 2 decimal places.) 14.00% 23.24% HPR X 2 decimal places required. 44% 14 -16

(Expected rate of return using CAPM) a. Compute the expected rate of return for Acer common stock, which has a 1.8 beta. The risk-free rate is 5 percent and the market portfolio (composed of New York Stock Exchange stocks) has an expected return of 13 percent. b. Why is the rate you computed the expected rate? ... a. The expected rate of return for Acer common stock is %. (Round to one decimal place.)

Use the following information to answer the two questions below. State of Prob. of the state of economy. 0.75 the economy Boom Bust 4.1 0.25 Rate of return if state occurs Stock A Stock B 16.1 0.15 0.05 0.02 4 You MUST use 4 digits in every calculation you do in order for your answer to be the same as the one in the system. When entering your answer, round to the nearest 0.01% but do not enter the % sign. For example, if your answer is 3.484% enter 3.48: if your answer is 0.12013 then enter 12.01 What is the expected return of a portfolio with 80% in asset A and 20% in Asset B? 0.02 What is the variance of the portfolio with 80% in asset A and 20% in Asset B?

Suppose you observe the following situation: Probability of State 0.35 0.40 0.25 State of Economy Recession Normal Irrational exuberance Stock A Stock B Expected Return Rate of Return if State Occurs Stock B % Stock A a. Calculate the expected return on each stock. (Round the final answers to 2 decimal places.) -0.11 0.10 0.45 -0.09 0.10 0.25 b. Assuming the capital asset pricing model holds and stock A's beta is greater than stock B's beta by 0.65, what is the expected market risk premium? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Expected market risk premium

Suppose TRF = 4%, TM = 9%, and b = 1.1. a. What is n, the required rate of return on Stock i? Round your answer to one decimal place. % b. 1. Now suppose rar increases to 5%. The slope of the SML remains constant. How would this affect ry and n? I. ry will increase by 1 percentage point and n will remain the same. II. Both ry and r, will decrease by 1 percentage point. III. Both rm and r, will remain the same.. IV. Both r and r, will increase by 1 percentage point. V. r will remain the same and r, will increase by 1 percentage point. -Select- v 2. Now suppose rar decreases to 3%. The slope of the SML remains constant. How would this affect ry and n? I. TM will decrease by 1 percentage point and n will remain the same. II. rs will remain the same and n will decrease by 1 percentage point. III. Both ry and r, will increase by 1 percentage point. IV. Both ry and r, will remain the same. V. Both ry and r, will decrease by 1 percentage point. Select

I need this question general Accounting

2. Required Rate of Return Suppose TRF = 4%, FM 9%, and FA = 8%. (a) Calculate Stock A's beta. Round your answer to one decimal place. - (b) If Stock A's beta were 1.3, then what would be A's new required rate of return? Round your answer to one decimal place. % 22222222 122122222322 2014 25226225 250-50 22 352525 2----- 2015