Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Textbook Question
Chapter 20, Problem 12P
You are long both a call and a put on the same share of stock with the same exercise date. The exercise price of the call is $40 and the exercise price of the put is $45. Plot the value of this combination as a function of the stock price on the exercise date.
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An investor purchases a stock for $38 and a put for $.50 with a strike price of $35. The investor sells a call for $.50 with a strike price of $40. What is the maximum profit and loss for this position? Draw the profit and loss diagram for this strategy as a function of the stock price at expiration.
Consider the three stocks in the following table. Pt represents price at time t, and ot represents shares outstanding at time t. Stock C
splits two for one in the last period.
Stock Po
P1 21
75
65
75
75
75
55 150 50 150
50 150
110 150 115 150 60 300
A
B
с
с
20
75
P2
a. Rate of return
b. Rate of return
Required:
Calculate the first-period rates of return on the following indexes of the three stocks (t=0 to t= 1):
Note: Do not round intermediate calculations. Round your answers to 2 decimal places.
a. A market-value-weighted index.
b. An equally weighted index.
22
%
%
For the next question, consider the two stocks, A and B, in the following table. Pt represents price at time t, and Qt represents shares outstanding at time t.
P0
Q0
P1
Q1
A
50
100
45
100
B
30
200
34
200
Calculate the rate of return on a price-weighted index of the two stocks for between t = 0 and t = 1. Assume the divisor value is 2. Enter your answer as a decimal, rounded to four decimal places (e.g, 0.0123).
Chapter 20 Solutions
Corporate Finance
Ch. 20.1 - What is the difference between an American option...Ch. 20.1 - Does the holder of an option have to exercise it?Ch. 20.1 - Prob. 3CCCh. 20.2 - What is a straddle?Ch. 20.2 - Explain how you can use put options to create...Ch. 20.3 - Explain put-call parity.Ch. 20.3 - If a put option trades at a higher price from the...Ch. 20.4 - What is the intrinsic value of an option?Ch. 20.4 - Can a European option with a later exercise date...Ch. 20.4 - How does the volatility of a stock affect the...
Ch. 20.5 - Is it ever optimal to exercise an American call on...Ch. 20.5 - When might it be optimal to exercise an American...Ch. 20.5 - Prob. 3CCCh. 20.6 - Explain how equity can be viewed as a call option...Ch. 20.6 - Explain how debt can be viewed as an option...Ch. 20 - Explain the meanings of the following financial...Ch. 20 - What is the difference between a European option...Ch. 20 - Prob. 3PCh. 20 - Prob. 4PCh. 20 - Prob. 5PCh. 20 - You own a call option on Intuit stock with a...Ch. 20 - Assume that you have shorted the call option in...Ch. 20 - You own a put option on Ford stock with a strike...Ch. 20 - Assume that you have shorted the put option in...Ch. 20 - What position has more downside exposure: a short...Ch. 20 - Prob. 11PCh. 20 - You are long both a call and a put on the same...Ch. 20 - You are long two calls on the same share of stock...Ch. 20 - A forward contract is a contract to purchase an...Ch. 20 - You own a share of Costco stock. You are worried...Ch. 20 - Dynamic Energy Systems stock is currently trading...Ch. 20 - You happen to be checking the newspaper and notice...Ch. 20 - Prob. 20PCh. 20 - Prob. 21PCh. 20 - Prob. 22PCh. 20 - Prob. 23PCh. 20 - Prob. 24PCh. 20 - Prob. 25PCh. 20 - Prob. 26PCh. 20 - Prob. 27PCh. 20 - Prob. 28PCh. 20 - Prob. 30PCh. 20 - Prob. 31P
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