Suppose that the premiums of an American call and put are C = $8.0/share and P = $7.5/share. The current stock price is S = 45.86 while the Strike for both options is $45.00/share. The stock does not pay dividends. 7.1 Show that there is arbitrage. 7.2 Indicate a strategy that based on the

A stock is currently selling for $40.00 a share. What is the gain or loss on the following transactions? Use a minus sign to enter the amount as a negative value. Round your answers to the nearest cent. a. You take a long position and the stock's price declines to $37.35. -10.65 b. You sell the stock short and the price declines to $37.35. 10.65 c. You take a long position and the price rises to $50.65. $ 2.65 d. You sell the stock short and the price rises to $50.65. -2.65

Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?    A B Price $25 $25 Expected growth (constant) 10% 5% Required return 15% 15% ​ Select one: a. The two stocks should not sell at the same price. If their prices are equal, then a disequilibrium must exist. b. Stock A has a higher dividend yield than Stock B. c. Stock A's expected dividend at t = 1 is only half that of Stock B. d. Currently the two stocks have the same price, but over time Stock B's price will pass that of A. e. Since Stock A's growth rate is twice that of Stock B, Stock A's future dividends will always be twice as high as Stock B's.

Consider the following multifactor (APT) model of security returns for a particular stock. Factor Inflation Industrial production Oil prices Expected rate of return Factor Beta 1.8 1.3 0.9 a. If T-bills currently offer a 9% yield, find the expected rate of return on this stock if the market views the stock as fairly priced. (Do not round intermediate calculations. Round your answer to 1 decimal place.) Factor Inflation Industrial production Oil prices Expected rate of return % b. Suppose that the market expects the values for the three macro factors given in column 1 below, but that the actual values turn out as given in column 2. Calculate the revised expectations for the rate of return on the stock once the "surprises" become known. (Do not round intermediate calculations. Round your answer to 1 decimal place.) Expected Value 5% Factor Risk Premium 7% 4 2 10 6 % Actual Value 3% 6 0