To create a delta-neutral portfolio, the SIT fund has sold 10,000 at-the-money (ATM) put options on Epsilon stock with when the shares were trading at $100. The risk manager from SIT uses the Black-Scholes model to value all option exposures. The current price of the shares is $90. The annualized standard deviation of Epsilon stock returns is 40% and the option expires in six months. If the risk-free rate is 2%, approximately, what is the likelihood that this option will be exercised? 26 (a) 0.6839 (b) 0.7975 (c) 0.3161 (d) 0.2025
Q: If the Apiando's share price at 6 August 2022 is $43.88 whereas beta is 1.97. US government bond at…
A: Cost of equity: The cost of equity represents the return expected by the equity investors for…
Q: $2,950 was deposited at the end of every six months for 8 years into a fund earning 4.5% compounded…
A: Semi-annual deposits are $2,950 The time period of deposits is 8 years The interest rate is 4.5%…
Q: You manage a portfolio worth $10M, you estimate the volatility is 20% per annum, if log rate of…
A: We have a portfolio here with returns following log normal distribution. We have to find the 99% two…
Q: Find the future value of a four-year investment of $2,570 that earns 4% compounded quarterly.
A: FV = P * (1 + r/n) ^ ntWhere FV = Future ValueP = Principal = $2,570R = Rate on interest = 4%T =…
Q: Regardless of the situation, no well-managed firm would borrow money to pay dividends to…
A: Corporations pay dividends out of the earnings to the shareholders as compensation for the funds…
Q: Consider an issued bond in which you are interested to invest. The coupon payment is $80 annually…
A: Bond is a fixed income debt instrument issued to raise capital. The lender (bond investor) lends…
Q: value company would most likely include stocks with high eps growth and high valuations
A: Value investing involves investment in those stocks which may not have good valuations currently but…
Q: An automatically perfected security interest in consumer goods when a merchant or lender offers…
A: There are different ways to obtain the loan using collaterals.
Q: portfolio (r
A: The Capital Asset Pricing Model is a model that describes the relationship between the expected…
Q: Over the past 3 years an investment returned 0.19, -0.09, and 0.08. What is the variance of returns?
A: Formula. variance is denoted by σ2. σ2 = ∑(x-mean of x)2N where , x is return N= number of years
Q: Describe three possible appreciating and three depreciating investments that are available for most…
A: Financial managers are the persons who are responsible for the financial aspects of an organization…
Q: Q1(a). The single-family home won't generate any income after rent, but you anticipate a significant…
A: NPV The difference that arises between the cash that flows into the business and the cash that flows…
Q: What amount must be deposited by a 15-year old student in a bank that pays 1% compounded annually so…
A: Discounting is a technique to arrive at the present equivalent amount of future cash flow. With the…
Q: You are an investor and notice a diversified portfolio, D from the table below. Suppose you use a…
A: Arbitrage is a method of buying any stock or security on one exchange and selling that security on…
Q: question 10 (EBIT-EPS analysis) Three recent graduates of the computer science program at the…
A: Concept. Earnings per share = net income ÷ number of shares. Indifferent EBIT level is the level…
Q: 5. Which of the following is incorrect regarding establishing central counterparties (CCPs)? (a)…
A: As per our guidelines we are supposed to answer only one question (if there are multiple questions…
Q: Technology companies have been doing all of the following in 2022 to respond to the meltdown in…
A: The technology companies have been facing a downside in the economy and their profits has contracted…
Q: from the given information calculate EFS and P/E ratio Net Income : 5,00,000 8% prference share…
A: In the given case, the income is given which is after deducting the expenses from the total income .…
Q: Find the depreciation for the indicated year using MACRS cost-recovery rates for the properties…
A: Depreciation for a 3 year property in the 3rd year = Value of property*Depreciation rate in the 3rd…
Q: A flexible pavement construction project is proposed. The estimated service life is 20 years. The…
A: NPV = -205000
Q: Define and discuss what is meant by the term of an investment? List and discuss different types of…
A: It is crucial to understand what an investment is since, occasionally, it may be difficult to choose…
Q: A proposed 10-mile, 4-lane road widening project is worth 3.6 million. The existing daily traffic is…
A: In a typical capital budgeting project, there are drivers of benefits as well costs. We have to find…
Q: Describe the three sufficient conditions required for consistent IRR and NPV rankings for one-time…
A: Introduction The three sufficient conditions required for consistent IRR and NPV rankings of…
Q: Mark and his partners have contracted to purchase the franchise rights, worth $146,000, to open and…
A: The deferral period is a time period in which it is unable to work till the time business gets…
Q: Equal deposits are made into a sinking fund at the end of each year for seven years. Interest is…
A: A sinking fund is a fund set up to pay off future debt. A fixed amount is put in at regular…
Q: 2. You have two investment accounts. Account #1 started at $700 at 6.8% compounded monthly. Account…
A: 700 Investment
Q: Q1(c). Due to high demand for apartments, the rental condo will earn the following cash flows over…
A: NPV or Net Present Value is a method of capital budgeting helpful in taking investment decisions…
Q: An institutional lender is willing to make a loan for $1 million on an office building at a 6…
A: Future value The value of today's money on a future date at a given interest rate is known as the…
Q: Determine the tax rate. Round to the nearest cent or nearest hundredth. Assessed property value:…
A: The tax rate can be determined in the following manner: (Expenses to be funded by property…
Q: Brody borrowed from a bank at 5.06% compounded monthly; he settled the loan by repaying $4,460 at…
A: The interest rate Compounded monthly is 5.06% Monthly payments are $4,460 The time period is 2 years…
Q: Use the information below to calculate WACC given the Market Capitalization of the company:…
A: Free Cash Flow (FCF) of the firm is calculated using EBIT. Value of a firm is the present value of…
Q: Soggy Eggs has a share price of $32, and 2.000.000 shares outstanding. They also have 48,000, $1000…
A: The WACC represents the overall cost of capital. It also knows as the hurdle rate or the minimum…
Q: Gains and losses are recognized daily IMR = $2,530, MMR = $2,300, for a T-Bond futures $100,000.…
A: Initial Margin (IMR) = $ 2530 Maintenance Margin (MMR) = $2300 T-bond contract initial investment =…
Q: Which of the following is TRUE regarding unemployment insurance? O The federal government mandates…
A: The government of the United States gives many benefits to their country's people, such as homes,…
Q: The price of a stock, which pays no dividends, is $76 and the strike price ofa10-month European put…
A: The stock price is $76 The strike price is $90 The time period is 10 months The risk-free rate is…
Q: The buyer of a car pays PhP169,000 cash and PhP12,000 every month for 5 years. If money is 10%…
A: Cash paid = Php169,000 Monthly payment (C) = Php12,000 Monthly interest rate (r) =…
Q: Preferred stock is the least used of all long-term securities because A)…
A: Preferred stock is the stock issued that gives the holders a right of preferential payments when…
Q: Question 6 Peter started to deposit PhP5,000 quarterly in a fund that pays 1% compounded quarterly.…
A: formula. Future value of annuity = PMT * [(1+r)n - 1]r where , PMT = periodic deposit r= interest…
Q: A property was purchased for $7260.00 down and payments of $1322.00 at the end of every three months…
A:
Q: Suppose that a call option to buy a share for $200 costs $10. What is the delta of this option today…
A: Delta is a metric for calculating derivatives risk, which is the ratio of the change in the price of…
Q: An immediate annuity makes monthly payments for 20 years. During the first year, each monthly…
A: An annuity is a payment series that provides an income to the holder in exchange for a lump-sum…
Q: If $3000.00 is invested for seven years and seven months at 6% p.a. compounded quarterly, calculate…
A: The time value of money means today's money value is more than the value of money tomorrow. In the…
Q: Mo. Jeanette Johnson is going to Saudi Arabia next week for Spring break. She inquires about the…
A: Concept. Bid rate is the buying rate of bank and Ask rate is the selling rate of bank.
Q: New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its…
A: NPV NPV is a capital budgeting tool to decide on whether the capital project should be accepted or…
Q: The SPDR (Standard & Poor 500) ETF has average annual return of 1.5% and standard deviation of 9.1%.…
A: Value at risk is a statistical measure of determining the risk of a portfolio. It is calculated as…
Q: that an analyst has looked at a random sample of 50 companies in the S&P 500 to understand the…
A: Standard Error is standard deviation or an estimate of standard deviation of a sample used for…
Q: Assume a bank only has 10 days of liquidity in the base case scenario (i.e./ positive net cash flow)…
A: A base-case scenario explains the a the expected outcome and is the basis of management's…
Q: (3) Suppose U.S. Airway wants to buy 1,000 barrels of jet fuel in 3 months. Today it enters one…
A: We have to find the basis, 3 months down the line. Basis is the difference of the Spot rate and the…
Q: Happy Holiday Inc (HHI) is considering a new capital budgeting project that will last for three…
A: Net present value shows the difference between the inflows and outflows of cash during the year. It…
Q: today's
A: The present value of a zero coupon bond = Face value/(1+interest rate)^n
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
- This example is part of "Hedged Portfolios" to minimize risk. Assume you have $9000 to invest; A stock is trading at $90.00. A call option that expires in one year with a strike price of $90.00 is trading at $10.00. What is your portfolio's 1-year return if you invest in "Only Stocks" and the the stock price after one year is $48.00? Enter your answer in the following format: + or - 0.1234 Hint: Answer is between -0.4212 and -0.5042 ___________? ANSWER IN TYPINGTo create a delta-neutral portfolio, the SIT fund has sold 10,000 put options on Epsilon stock with a strike price of $80 when the shares were trading at $100. The risk manager from SIT uses the Black-Scholes model to value all its option exposures. The current price of the shares is $90. The annualized standard deviation of Epsilon stock returns is 40% and the option expires in six months. If the risk-free rate is 2%, approximately, what is the likelihood that this option will be exercised? (a) 0.7975 (b) 0.6219 (c) 0.3781 (d) 0.2025A portfolio consists of 1,000 shares of stock and 500 short calls on that stock. The current stock price is $92.20. The call option has a maturity of one year, with an exercise price of $100 and a standard deviation of 25%. The risk-free rate is 5%. The call option price is found by using the Black-Merton-Scholes model. What would be the dollar change in the value of the portfolio be in response to a one-dollar increase in the stock price?
- This example is part of "Hedged Portfolios" to minimize risk. Assume you have $7000 to invest; A stock is trading at $100.00. A call option that expires in one year with a strike price of $100.00 is trading at $8.00. How much is your portfolio's 1-year return if you invest in "Only Options" and the stock price after one year is $54.00? Enter your answer in the following format: + or - 0.1234 Hint: The Answer is between -0.89 and -1.08A fund manager has a portfolio worth $95 million with a beta of 1.16. The manager is concerned about the performance of the market over the next two months and plans to use three-month futures contracts on the S&P 500 to hedge the risk. The current level of the S&P 500 index is 2,675, the risk-free rate is 2% per annum, and the dividend yield on the index is 4% per annum. The current 3-month S&P 500 index futures price is 2,660, and one contract is on 250 times the index. (a) What position should the fund manager take to eliminate all risk exposure to the market over the next two months? (B' = 0) How many three-month S&P 500 futures contracts should the fund manager buy or sell now? (Rounding to the nearest whole number.) (b) Calculate the effect of your strategy on the fund manager's returns if the level of the S&P 500 index in two months is 2,585. Assume that the 3-month S&P 500 index futures price is 2,570 in two months. What would be the expected value of the fund manager's hedged…You create a portfolio consisting of $23000 invested in a mutual fund with beta of 1.3, $25000 invested in Treasury Securities (assume risk-free), and $12000 invested in an index fund tracking the market. According to surveys, the expected market risk premium is 6.6%, risk free rate is 1.3%. What is the expected return of this portfolio according to CAPM? Answer in percent, rounded to one decimal place.
- A fund manager has a portfolio worth $100 million with a beta of 1.5. The manager is concerned about the performance of the market over the next two months and plans to use three-month futures contracts on the S&P 500 to hedge the risk. The current level of the index is 2250, one contract is on 250 times the index, the risk-free rate is 2%, and the dividend yield on the index is 1.7% per year. (Assume all the rates are continuously compounded.) What is the theoretical futures price for the three-month futures contract? What position should the fund manger take to eliminate all exposure to the market over the next two months? Calculate the effect of your strategy on the fund manager’s returns if the level of the market in two months is 2,000, 2,200, 2,500, 2,800, and 3,000.A fund manager has a portfolio worth $55 million with a beta of 1.37. The manager is concernedabout the performance of the market over the next five months and plans to use six-month futurescontracts on the S&P 500 to hedge the risk. The current level of the index is 3,000, one contract ison 250 times the index, the risk-free rate is 5% per annum, and the dividend yield on the index is3% per annum. The current 6-month futures price is 3,030. The fund manager takes a position inS&P 500 index futures to eliminate half of the exposure to the market over the next five months.Calculate the effect of your strategy on the fund manager’s returns if the level of the market in fivemonths is 2,950 and one-month futures price is 1% higher than the index level in five months.A fund manager owns a portfolio of 10 stocks. Explain how the manager can reduce the systematic risk of his portfolio by 10% over the next year using futures. Will the expected return on the manager’s portfolio also drop by 10%? Is it possible for the manager to perfectly hedge his exposure to equity risk? Explain your answers.
- An investor invests 30% of his funds in risk free asset and the remaining 70% of funds in an index fund that represents the market. The risk-free return is 8%. The index fund is expected to give a return of 21%. Using the CAPM Model. a. What is the expected return from the portfolio of the investor? The standard deviation of returns from the index funds is 9.80. What is the Standard Deviation of the portfolio return? b. If the investor withdraws his investment in the risk free security and invests the same also in the index fund, what is the expected return? What is the portfolio risk?A trader has invested $100,000 in Stock A and $150,000 in Stock B. She knows the following: • Stock A's daily average return is 0% and its daily standard deviation is 1%. • Stock B's daily average return is 0% and its daily standard deviation is 4%. • The stocks have a correlation of 0.8. If returns are assumed to be normally distributed, calculate the 10 day Value-at Risk for this portfolio at the 99% level. Use 4-digit decimal places throughout the calculation.At time t=0 Mr. Anderson sets up a riskless portfolio by taking a position in an option and in the underlying asset. Explain what Mr. Anderson needs to do at time t=1 to keep his portfolio risk neutral and why. A stock price is currently $100 and at the end of four months it will be ST . A derivative written on this stock pays off expST1/3 in four months. Given that u = 1.15, d = 0.87, and that the risk-free interest rate is 10% p.a. (continuously compounded), answer the following questions using a one-period binomial model (show all the details of your calculations and display the results with four decimal places): Calculate the value of ∆ Calculate the current value of the derivative.