After finding the Black-Scholes equation for П = 2CE (S, 1) – 3PE (S, t) – aS %3D with a comparison to the interest rates, determine what the zero- order term in the resulting equation is. (Hint: zero-order term means the term with no derivatives involved) r (9 PE-4CE). rS(4CE-9PE). rS(2CE-3PE). r (3 PE- 2CE). O None of the above.

After finding the Black-Scholes equation for П = 2CE (S, 1) – 3PE (S, t) – aS %3D with a comparison to the interest rates, determine what the zero- order term in the resulting equation is. (Hint: zero-order term means the term with no derivatives involved) r (9 PE-4CE). rS(4CE-9PE). rS(2CE-3PE). r (3 PE- 2CE). O None of the above.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose we observe the following rates: 1R1 = 0.75%, 1R2 = 1.20%, and E(2r1) = 0.907%. If the liquidity premium theory of the term structure of interest rates holds, what is the liquidity premium for year 2, L2? (Do not round intermediate calculations. Round your answer to 3 decimal places.)
Which of the following statements is true? Select one of the options i. – iii.As the number of compounding periods increases, the value of the AnnualPercentage Rate (APR)i. increases and is higher than the nominal rate of interestii. equals to the nominal rate of interestiii. increases and is lower than the nominal rate of interest.
Suppose we observe the following rates: 1R1= 0.75%, 1R2=1.20%, E(2r1)=0.907%. If the liquidity premium theory of the term structure of interest rates holds, what is the liquidity premium for year 2, L2?
I just want to make sure that I'm correct, the answers I selected are in bold. If it doesn't show: 1. D (the risk-free rate plus a risk premium) 2. B (conversion) 3. C (par value) 4. B ($655.00) - For question 4, the table is attached. 1) Nominal rate of interest is equal to ________. A) the real rate plus an inflationary expectation B) the real rate plus a risk premium C) the risk-free rate plus an inflationary expectation D) the risk-free rate plus a risk premium 2) The ________ feature allows bondholders to change each bond into stated number of shares of stock. A) call B) conversion C) put D) swap 3) A $1,000, 8% bond sells for 980. $1,000 is called the ________. A) current value B) market value C) par value D) auction value Assume the below information to answer the following question(s). 4) Based on the table above, assume this bond's face value is $1,000. What is the bond's current market price? A) $65.00 B) $655.00 C) $650.00 D) $6,550.00
Assume that thr nominal interest rate is 14%, the risk premium is 4% and real interest rate is 3%, find the inflation rate and the risk free interest rate.
Imagine that the table above outlines deposits rates. Assuming A wants a fixed rate deposit and B wants a floating rate deposit, design the swap that would split the net gain in proportion 3:1 between A and B (A=3 : B=1).
Assume that the risk free rate is currently 3% and that the market retunr is currently 11%. Calculate the market risk premium Give the previous datea, calculate the required retun on asset A having a beta of 0.3 and asset B having a beta of 1.5.
A forward contract has an underlying asset which, in Cox-RossRubenstein notation, has S=22,u=1.2 and d=0.9. This forward contract matures in one time step and the return over this time step is R=1.02. Assuming the forward price is calculated rationally, what is the value of the forward at node (1,1)? (Give your answer as a positive number.)
Solve the diagram for the unknown Q assuming a 6% interest rate.
Assume a security follows a geometric Brownian motion with volatility parameter sigma=0.2. Assume the initial price of the security is $25 and the interest rate is 0. It is known that the price of a down-and-in barrier option and a down-and-out barrier option with strike price $22 and expiration 30 days have equal risk-neutral prices. Compute this common risk-neutral price. I was able to do this problem, but have a question about the interpretation of my answer. I got an answer of $3.00 for the cost of the call option, but how do I answer "compute this common risk-neutral price"? Do I have to divide the answer my 2 for each of the barrier options and say the answer is $1.50? Or because of the fact that it says common does that mean to take the combined value of $1.50+$1.50 to get $3.00 as the answer? I'm just not sure if my answer to the question is $3.00 or $1.50. Does it all depend on the word "common"? Thanks for some clarification.
A. Assume that the variables I, N, and PV represent the interest rate, investment or deposit period, and present value of the amount deposited or invested, respectively. Which equation best represents the calculation of a future value (FV) using: Compound interest? FV = (1 + I)NN / PV FV = PV / (1 + I)NN FV = PV x (1 + I)NN B. Simple interest? FV = PV + (PV x I x N) FV = PV - (PV x I x N) FV = PV / (PV x I x N) C. Identify whether the following statements about the simple and compound interest methods are true or false. Statement True False After the end of the second year and all other factors remaining equal, a future value based on compound interest will never exceed the future value based on simple interest. All other variables held constant, investments paying simple interest have to pay significantly higher interest rates to earn the same amount of interest as an account earning compound…
assume that risk free rate, RF, is currently 8%, the market return, 1m, is 12%, and asset a beta ba, is 1.10. (a) Draw the SML on a set of "non-diversifiable risk Please sent me complete this question for further reliance.

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