answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
vazorg [7]
2 years ago
10

A stock price is currently $40. Over each of the next two three-month periods it is expected to go up by 10% or down by 10% (mea

ning, precisely, if the stock price at the start of a period is $40, it will go to $40*1.1=$44 or to $40*0.9=$36 at the end of the period and if the stock price at the start of a period is $44, it will go to $44*1.1=$48.44 or to $44*0.9=$39.6 at the end of the period). The risk-free interest rate is 12% per annum with continuous compounding. a. What is the value of a six-month European put option with a strike price of $42? b. What is the value of a six-month American put option with a strike price of $42? c. What is the value of a six-month American put option with a strike price of $45? What do you conclude about whether or not it is optimal to exercise this American option immediately (Hint: What would be the value of this American option if it were to be exercised immediately)
Business
1 answer:
ad-work [718]2 years ago
4 0

Answer:

Explanation:

The Risk neutral probability is given by

e rt − D / U-D

U=1.1

D=0.9

R=0.12

T=3/12

π u = e∧ 0.12 ∗ 3 / 12 − 0.9 /1.1 − 0.9

 =0.652

π d = 1− 0.652 = 0.348

The values of american and european options at each node is given in the following table.

                                    0.652  

                                                                                                    0  

                                                                0.81   48.4  

                                                                0.652    

                                                                0.81    

American option value     2.54         44    

probability                    0.652/0.3478'  

Option value                     2.12        2.4  

Futures price                        40           6      39.6  

                                                               0.3478    

                                                               4.76    

                                                                  36    

                                                                                           0.3478  

                                                                                           9.6  

                                                                                          32.4  

Time period                         0      3           6

the value at up node at 3 months is given by = ( 0.652∗ 0 ) + ( 0.3478 ∗ 2.4 )/e ∧0.12 ∗ 3 / 12 = 0.81

Hence, value of european put option =$2.12

Value of American put option = 2.54

You might be interested in
The variety of Riverside Ranger logo T-shirts includes 12 different designs. Setup between designs takes one hour (and $18,000),
cluponka [151]

Answer:

The production exhibit both scope economics and scale economics. They are not mutually exclusive.

Explanation:

Looking at the scenario critically, we will clearly see the tendency of a scope economics. Scope economics basically hinges on getting a competitive advantage, essentially because of producing in large quantities and numbers. Riverside Ranger logo T-shirts exhibits this as it produce its products in large numbers, producing 1000 pieces of a particular design in 1 hour.

In same breath, we also have the scale economics exhibited by the organization. Taking a deeper look at the cost representation, we will see that the average cost tend to reduce as the production increases. Thus, an economic of scale is achieved here by leveraging on the mass and swift production style of Riverside Rangers logo T-shirts.

7 0
2 years ago
10. The Wetski Water Ski Company is the world’s largest producer of water skis. As you might suspect, water skis exhibit a highl
xenn [34]

Answer: $ 30,290,000

Explanation:

For this question, the transportation table has been addressed below.

“X” indicates that there will be no possible production in the specific cell.

(i) The total cost of optimum production plan = (50,000 x 50) + (50,000 x 78) + (50,000 x 50) + (50,000 x 75) + (20,000 x 91) + (40,000 x 88) + (50,000 x 50) + (50,000 x 75) + (40,000 x 85) + (50,000 x 50) + (2,000 x 75)

= $ 30,290,000.

Therefore, the cost of the plan will be $30,290,000.

5 0
2 years ago
Hettenhouse Company's perpetual preferred stock sells for $102.50 per share, and it pays a $9.50 annual dividend. If the company
solniwko [45]

Answer:

The company's cost of preferred stock for use in calculating the WACC is 9.65%

Explanation:

For computing the cost of preferred stock, the following formula should be used which is shown below

= Annual dividend based on preferred stock ÷ (Price per share × Flotation cost)

where,

Flotation cost = 1- rate

                      = 1- 4% = 0.96

= $9.50 ÷ ($102.50 × 0.96)

= $9.50 ÷ $98.4

= 9.65%

The flotation cost should be deducted because it is a one time expense. Thus, it would be minus from price per share.

Hence, the company's cost of preferred stock for use in calculating the WACC is 9.65%

5 0
2 years ago
In which of the following situations can multiple regression be performed? Select all that apply. Select all that apply: predict
Dimas [21]

Answer:

a. predicting the current salary of an employee, given the initial salary and the number of years the employee has been in his or her current position

b. predicting the number of home runs a baseball player will hit in the next season, given the number of home runs the player hit in the previous season and the number of doubles the player hit in the previous season

Explanation:

Multiple regression is a regression method that is employed to to predict the value of a variable, called the dependent variable, based on the value of two or more other variables, called the independent variables.

From the question, on the following two options have one dependent and at least two independent variables as indicated below:

a. "<em>the current salary of an employee</em>" is the dependent variable. "<em>the initial salary</em>" is the first independent variable, and "<em>the number of years the employee has been in his or her current position</em>" is the second independent variable.

b. "<em>the number of home runs a baseball player will hit in the next season</em>" is the dependent variable. "<em>the number of home runs the player hit in the previous season</em>" is the first independent variable, and "t<em>he number of doubles the player hit in the previous season</em>" is the second independent variable.

6 0
2 years ago
On July 1, 2011, Hale Kennels sells equipment for $66,000. The equipment was originally purchased on July 1, 2007 at a cost $180
barxatty [35]

Answer:

<u>journal entry to update depreciation as of July 1, 2011</u>

Depreciation Expense $16,000 (debit)

Accumulated Depreciation $16,000 (credit)

<u>journal entry to record the sale of the equipment</u>

Cash $66,000 (debit)

Accumulated Depreciation $128,000 (debit)

Equipment $180,000 (credit)

Profit and Loss $14,000 (credit)

Explanation:

If Hale Kennels uses the straight line method then the calculations will be as follows :

Annual Depreciation Charge = (Cost - Residual Value) ÷ Estimated Useful Life

                                                = ($180,000 - $30,000) ÷ 5

                                                = $32,000

Therefore,

Depreciation Charges for the period in use will be as follows :

2007 = $16,000 ($32,000 × 1/2)

2008 = $32,000

2009 = $32,000

2010 = $32,000

2011 =  $16,000 ($32,000 × 1/2)

Total Accumulated depreciation = $128,000

<u>Explaining journal entry to record the sale of the equipment</u>

1. Derecognize the Cost of the Asset

2. Derecognize the Accumulated depreciation

3. Recognize the Cash Proceeds

4. Recognize the Profit or Loss arising from the sale

7 0
2 years ago
Other questions:
  • Andrew's mother knew something about planning since she was, in fact, a financial planner-a person who helps others to plan the
    5·1 answer
  • DT Motors paid its first annual dividend yesterday in the amount of $.15 a share. The company plans to double the dividend in ea
    6·1 answer
  • why is the quantity of education demand in private universities Much more responsive than salt is to change in price ?​
    6·1 answer
  • Red Raider Company uses a plantwide overhead rate with machine hours as the allocation base. Next year, 400,000 units are expect
    13·1 answer
  • Bobby is part of the marketing team of a company that sells various Bluetooth devices. The target customers for this product bel
    13·1 answer
  • Jim and Lisa own a dog-grooming business in Champlain, New York, called JL Groomers. There are many buyers and many sellers in t
    14·1 answer
  • PLEASE HELP OFFERING 20 POINTS AND WILL MARK YOU AS BRAINLY
    14·1 answer
  • "Higher level professions require indepth knowledge, good skill, and special training." Explain this statement with examples.
    11·1 answer
  • Determine if the people in the example have benefited (i.e., are winners) or have been harmed (i.e., are losers) by unexpected i
    14·1 answer
  • Evelyn invests $5,000 in a savings account that pays interest at a rate of 6.7% compounded annually. If she withdraws half the i
    11·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!