4. Determine the risk-neutral value of a eight-month European put option to sell a FLB (First Local Bank) share for a price of R400 when the current price is R420, the interest rate is 10%. and the volatility of the security is 0.28?

4. Determine the risk-neutral value of a eight-month European put option to sell a FLB (First Local Bank) share for a price of R400 when the current price is R420, the interest rate is 10%. and the volatility of the security is 0.28?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter27: Multinational Financial Management

Section: Chapter Questions

Problem 7MC

See similar textbooks

Related questions

Q: A sudden reduction in interest rates would ______ the price of a 5-year bond ____ than the price of…

A: Bond: It is a financial debt instrument issued by the issuer (company) to raise debt capital from…

Q: 11-7. Jumbo Juice’s preferred stock pays a constant dividend equal to $4.75 per share. The firm’s…

A: Annual dividend (D) = $4.75 Flotation cost (F) = 0.05 or 5% Number of shares issued (N) = 10,000…

Q: 8

A: Bonds refer to investment securities in which an investor lends money to the organization for a…

Q: (Related to Checkpoint 5.4) (Present-value comparison) You are offered $110,000 today or $400,000 in…

A: Present value is the present worth of a future amount which is calculated by discounting the future…

Q: (Net present value calculation) Carson Trucking is considering whether to expand its regional…

A: Net Present Value(NPV) refers to one of the concepts from the modern techniques of capital budgeting…

Q: BookFinders Inc. is making a decision about investing in new technology. It currently expects to…

A: The firm is making a decision about investing in new technology. This will lead to a permanent…

Q: ) The forecasted demand for the week of October 12 using a 3-week moving average = ____ pints…

A: the final answer is 373.67 approx Approach used for the solution;- Under three period moving…

Q: A construction company in Manila will bid on the digging of an irrigation canal in a nearby province…

A: Solution:

Q: An airline is considering two types of engine systems for use in its planes. Each has the same life…

A: Equivalent annual cost refers to the cost that is owned, operated, and maintained for an asset in…

Q: Two $200 payments at the ends of the third and fourth years would be worth how much today? if there…

A: Solution:- When an amount is deposited somewhere, it earns interest on it. The amount initially…

Q: Find the present worth of a future payments of P70,000.00 to be made in 10 years with an interest of…

A: Compound interest is earning interest on both the principal and interest already earned. The…

Q: 5. Selecting a sample of items from a data set so that the sample is representative of the…

A: As per our guidelines we are supposed to answer only one question (if there are multiple questions…

Q: Malcolm owns an empty shop unit. Following long negotiations with Urquhant plc, which operates a…

A: “Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only…

Q: The current amount A of a principal P invested in a savings account paying an annual interest rate r…

Q: Determine the risk-neutral value of a eight-month European put option to sell a FLB (First Local…

A: Risk neutral valuation: The risk-neutral valuation method assumes that the prices of all assets will…

Q: A supermarket charges 2.75% per month on credit purchases. What is the equivalent nominal annual…

A: Nominal rate is interest rate without the impact of compounding interest rate and it is like simple…

Q: Betsy, a recent retiree, requires $6,000 per year in extra income. She has $70,000 to invest and can…

A: Investment Amount = $70,000 B-rated Bond interest Rate = 17% Certificate of Deposit (CD) interest…

Q: a company will be paying off a loan witj annual payments of $6000 for 8 years assuming 5% annual…

Q: On Sunday, February 19, 2012 The Boston Globe reported that: " ... [The MBTA] provides 1.3 million…

A: We have the tariff earlier and proposed now. We have to find the absolute and relative increase.…

Q: Consider the nominal interest rate (m) compounded monthly for which a deposit of $1000 now and each…

A: Yearly Deposit = $1,000 Term of deposit = 3 Future Value = $5,000

Q: You plan to retire at the age of 65 and be able to live for 30 years paying yourself $80,000 per…

A: There is need of proper planning for retirement and if done on time would produce good results in…

Q: 10. Which of the following 1-year investments has the highest rate of return? (a) $12,500 that…

Q: Question: Gasworks, Inc., has been approached to sell up to 2.4 million gallons of gasoline in three…

A: The 2 state model has two states - running and not running state. So among the processes which are…

Q: An investment offers $6,600 per year, with the first payment occurring one year from now. The…

A: Annual payment (C) = $6,600 Required return (r) = 0.05 Present value or value today = ? Present…

Q: You are the chief financial officer (CFO) of Gaga Enterprises, an edgy fashion design firm. Your…

A: Options B,C,D are correct correct statements option B The investment banking institution will allow…

Q: You would like to estimate the weighted average cost of capital for a new airline business. Based on…

A: The unlevered cost of capital refers to the cost of equity or the theoretical cost of a project…

Q: El Paso Water (EPW) purchases surface water for treatment and distribution to EPW customers from…

A: El Paso Water (EPW) purchases surface water for treatment and distribution to EPW customers from the…

Q: Peter Piper’s Pies (P3) is evaluating four independent investments. The cost of each project is…

A: IRR or internal rate of return: Selection Criteria: If IRR > Cost of capital, the project is…

Q: A low-cost noncontact temperature measuring tool may be able to identify railroad car wheels that…

A: Interest Rate = 10% Time Period = 5 Years Saving = $100,000 Amount increasing = $10,000 per year

Q: 4. The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in…

A: Semiannual coupon amount = $40 (i.e. $1000 * 0.08 / 2) Bond price = $1035.44 Semiannual maturity…

Q: Here is a simplified balance sheet for Caterpillar Tractor: Caterpillar Tractor Balance Sheet ($ in…

A: It is given that: Shares outstanding – 660 mil Market price - $86 Book value of the company – 17,535

Q: (Related to Checkpoint 5.4) (Present-value comparison) You are offered $100,000 today or $300,000 in…

A: Here, Present value (PV) = $100,000 Future value (FV) = $300,000 No. of years (NPER) = 13 years…

Q: Consider the investment cash flows shown below. If the firm's MARR is 15%, draw cash flow diagram…

Q: If a firm has an EV of $1,270 million and EBITDA of $388 million, what is its EV ratio? (Round your…

A: Enterprise Value(EV) Analysts frequently utilize enterprise value/financial metrics to swiftly…

Q: Forecast income statement - ALL FIGURES IN $ MILLION Financial year ending 31 March 2023 2024 2025…

A: Revenue for 2025 is $210million Working capital requirement for each year is 10% of revenue.…

Q: Monster Limos plans to issue new bonds that have the same yield as its existing bonds, which have a…

A: Given: Particulars Amount Face value (FV) $1,000 Present value(PV) 886 Coupon rate 4%…

Q: How should the $70,000 be allocated to each alternative to maximize annual return? What is the…

A: As per the given information: Investment amount - $70,000 Return on instruments: Municipal bonds -…

Q: what are the 5 categories of ratios and which would be most important to you if you were an inv

A: For the investors financial ratios are very important and they help in decision making to the…

Q: Christie, Incorporated, has identified an investment project with the following cash flows. Year 1 2…

A: Future value is the compounded value of all the cash flows using appropriate discount rate.

Q: Jenny Enterprises has just entered a lease agreement for a new manufacturing facility. Under the…

A: Monthly payment (C) = $21,500 Monthly interest rate (r) = 0.0072 (i.e. 0.0864 * 12) Monthly period…

Q: Characteristics of factor factor model

A: Factor models are mathematical models that are developed to estimate the returns of financial…

Q: The Nixon Corporation's common stock has a beta of 1.8. If the risk-free rate is 4.9 percent and the…

A: In the above question we are given: Beta=1.8 Risk free return=4.9% Expected return on the market=11%…

Q: 3. s) Maggie deposited $X into fund A and $2X into fund B. Fund A earns interest at 8% effective…

A: The time value of money is connected to the current value of money and the future value of money.…

Q: The current amount A of a principal P invested in a savings account paying an annual interest rate r…

A: The current value: The current value refers to the value at present of a sum of money to be…

Q: According to the balance sheet of Free Inc, at the end of the 2020 fiscal year, the cash balance is…

A: Economic value added(EVA) is a concept that measure the performance of a firm’s management in…

Q: Bethesda Mining is a midsized coal mining company with 20 mines located in Ohio, Pennsylvania, West…

A: Payback period:This method is used to calculate how many years a project will take to recover its…

Q: Kate deposited P5,000 to her bank account every year when she was in high school for four years to…

A: First, we will calculate present value for both deposits Present value (deposits before graduation)…

Q: A grandmother left a will to her grandson an amount of P25,000 and was deposited in a bank with a…

A: We are given- Rate=8% Present value=25000 Future value=45000 We have to calculate time period We can…

Q: News Corp is expected to pay a dividend of $0.8 in one year. The dividend is expected to grow at 12%…

A: The value of stock can be found as the present value of dividend and the present value of terminal…

Q: The key similarities and differences between a small company equity fund (also called a small cap…

A: In today scenario Mutual fund become the best source of generating consistent income for small group…

Concept explainers

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.

Question

4. Determine the risk-neutral value of a eight-month European put option to sell a FLB (First
Local Bank) share for a price of R400 when the current price is R420, the interest rate is 10%.
and the volatility of the security is 0.28?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Step by step

Solved in 3 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Determine the risk-neutral value of a eight-month European put option to sell a FLB (First Local Bank) share for a price of R400 when the current price is R420, the interest rate is 10%, and the volatility of the security is 0.28? WITHOUT USING EXCEL
Determine the risk-neutral value for a European put option (for a FLB (First Local Bank) share) that expires in eight months. The strike price is R500 and the current price is R650. The interest rate is 11%, and the volatility of the security is 0.026. *DO NOT USE EXCEL OR ANY OTHER PLATFORM, SHOW STEP-BY-STEP CALCULATION
What is the risk-neutral valuation of a six-month European put option to sell a security for a price of 100 when the current price is 105, the interest rate is 10%, and the volatility of the security is .30?
What is the risk-neutral valuation of a six-month Euro-pean put option to sell a security for a price of 100 when the current priceis 105, the interest rate is 10%, and the volatility of the security is .30?
What is the price of a European put option on a non-dividend paying stock when thestock price is K69, the strike price is K70, the risk-free rate is 5% per annum, thevolatility is 35% per annum, and the time to maturity is 6 months?
Suppose that a stock price is currently 35 dollars, and it is known that four months from now, the price will be either 51 dollars or 29 dollars. Find the value of a European call option on the stock that expires four months from now, and has a strike price of 39 dollars. Assume that no arbitrage opportunities exist and a risk-free interest rate of 10 percent.Answer =dollars.
The price of a European call option on a stock with a strike price of $50.9 is $5.6. The stock price is $40.1, the continuously compounded risk-free rate (all maturities) is 5.2% and the time to maturity is one year. A dividend of $0.6 is expected in six months. What is the price of a one-year European put option on the stock with a strike price equal to the call's strike price? Please state the formula and steps, thanks
The current price of YBM stock S is $55. At-the-money European options with a strike price K = S and maturing in T = 6 months trade on YBM. The continuously compounded, risk-free interest rate r is 1.8 percent per year. If the call price is $5.22, then the no-arbitrage put price is
Suppose that a stock price is currently 56 dollars, and it is known that five months from now, the price will be either 22 percent higher or 22 percent lower. Find the value of a European put option on the stock that expires five months from now, and has a strike price of 55 dollars. Assume that no arbitrage opportunities exist, and a risk-free interest rate of 6 percent.
Consider a 3-month European call option on a non-dividend-paying stock. The current stock price is $20, the risk-free rate is 6% per annum, and the strike price is $20. Assume a risk-neutral world. You calculate the following values using the Black-Scholes-Merton model: d1 = 0.2000 N(d1) = 0.5793 d2 = 0.1000 N(d2) = 0.5398 a) What is the probability that the call option will be exercised? b) What is the expected stock price at the option’s expiration in 3 months? Assume that all values of the stock price less than $20 are counted as zero. c) What is the expected payoff on the option at expiration (in 3 months)? d) Calculate the PV of the expected payoff from part c).
What would be the price of a two-month European put option on a non-dividend-paying stockwhen the stock price is $68.50, the strike price is$70, and the risk-free interest rate is 5% per annum?Assume a volatility of 60% for this stock.
Consider a European put and a European call option which are both written on a non-dividend paying stock, have the same strike price K = £80 and expire in T = 2 months. These options are trading for p = £21 and c = £30.80, respectively. The underlying stock price is S0 = £90. The continuously compounded risk-free rate of interest is r = 10% per annum. What is the present value of the arbitrage profit? Please explain your answer and show your workings. In your response, please show all cash flows (both today and at expiration) and explain why this is an arbitrage (i.e. risk-less) profit.