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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

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finlep [7]

Answer:

Compensate for the risk

Explanation:

In the context of the scenario given , risk is defined as a form of exposure to a potential dangerous situation.

It is necessary for any person organization facing a risky situation to look for ways of minimizing or avoiding the risk in order to reduce related losses. Risks can be avoided through transfer , rejection , delayed action and compensating the risk,

The method of risk aversion described in the scenario is to compensate the risk.

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7 0
1 year ago
Consider the following situations for Shocker:
GaryK [48]

Answer:

(a) On November 28, 2018, Shocker receives a $3,000 payment from a customer for services to be rendered evenly over the next three months. Deferred Revenue is credited.

Assets = Lower by $ 3,000

Liabilities = No Effect

Stockholders Equity = No Effect

(b) On December 1, 2018, the company pays a local radio station $2,400 for 30 radio ads that were to be aired, 10 per month, throughout December, January, and February. Prepaid Advertising is debited.

Assets = Higher by $ 2,400

Liabilities = No Effect

Stockholders Equity = No Effect

(c) Employee salaries for the month of December totaling $7,000 will be paid on January 7, 2016.

Assets  = No Effect

Liabilities = Lower by $ 7,000

Stockholders Equity = Higher by  $ 7,000

(d) On August 31, 2018, Shocker borrows $60,000 from a local bank. A note is signed with principal and 8% interest to be paid on August 31, 2019

Assets= Lower by $ 60,000

Liabilities = Lower by $ 60,000

Stockholders Equity = Higher by $4,800

Explanation:

(a) On November 28, 2018, Shocker receives a $3,000 payment from a customer for services to be rendered evenly over the next three months. Deferred Revenue is credited.

Recognise an Asset - Cash and a Liability - Deferred Revenue. Only Liability was Recognised

(b) On December 1, 2018, the company pays a local radio station $2,400 for 30 radio ads that were to be aired, 10 per month, throughout December, January, and February. Prepaid Advertising is debited.

Recognise Asset - Prepaid Advertising and De-recognise Asset - Cash. Only Prepaid Advertising was recognised

(c) Employee salaries for the month of December totaling $7,000 will be paid on January 7, 2016.

Recognise a Liability Salaries Payable and an expense Salaries and Wages. Both items were not recognised

(d) On August 31, 2018, Shocker borrows $60,000 from a local bank. A note is signed with principal and 8% interest to be paid on August 31, 2019

Recognise the Liability - Loan and recognise the asset - Cash. Also recognise the expense that accrue as a result of interest on August 31.

3 0
2 years ago
Imagine that in the frame of Azerbaijan National Football Championship Nefthci and Karabakh football teams will have a match in
Ymorist [56]

Answer:

The fans as they purchase tickets

Explanation:

The government has imposed a $2 tax per seat. The stadium management will increase the price of tickets per seat by at least $2. It means the customers (fans) will pay an extra amount per seat to cater for the taxes.  

The stadium management will act as a tax intermediary. They will collect the $2 per seat tax from the ticket sales and remit it to the government.

8 0
1 year ago
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mars1129 [50]

Answer:

1.  Financial Analysis

2.  Marketing-Information Management

Explanation:

A school-based enterprise often referred to as SBE is an entrepreneurial undertaking in a school setting that participates in goods/services delivery to address the needs of the market.

SBEs are organized and regulated by students as practical learning laboratories that incorporate National Curriculum Standards in various departments such as marketing, finance, hospitality or management.

Hence, the full 10 School Based Enterprise instructional Units are the following:

1. Financial Analysis

2. Marketing-Information Management

3. Operations

4. Market Planning

5. Product/Service Management

6. Pricing

7. Distribution/Channel Management

8. Promotion

9. Selling

10. Human Resources Management

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harkovskaia [24]

Answer:

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