An S&P 500 index linked CD matures in 4 years, with the face value the same as the current S&P 500 index price, $ 2400. Upon its maturity, the investor will be paid back the face value, plus 60% of the gain on the S&P 500 index. The S&P 500 continuous dividend yield is 1.5% and continuously compounded risk-free rate is 4%. The S&P 500 volatility is 25%. What is the fair value of this CD? O $2215.48 O $2305.90 $ 2351.73 O $2612.48

An S&P 500 index linked CD matures in 4 years, with the face value the same as the current S&P 500 index price, $ 2400. Upon its maturity, the investor will be paid back the face value, plus 60% of the gain on the S&P 500 index. The S&P 500 continuous dividend yield is 1.5% and continuously compounded risk-free rate is 4%. The S&P 500 volatility is 25%. What is the fair value of this CD? O $2215.48 O $2305.90 $ 2351.73 O $2612.48

Name: DONT GIVE ANSWER IN IMAGE FORMAT An S&P 500 index linked CD matures in
Uploaded: 2024-03-20T06:51:32.000Z
Channel: Bartleby
Description: DONT GIVE ANSWER IN IMAGE FORMAT An S&P 500 index linked CD matures in 4 years, with the face value the same as the current S&P500 index price, $ 2400. Upon its maturity, the investor will be paid back the face value, plus 60%of the gain on the S&P 5

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 6P

See similar textbooks

Similar questions

Company A will pay a dividend at the end of each year at 200Php for the next 5 years for Stock A with a discount rate of 8%. On the other hand, Company B will pay annual dividend of 50php, 100Php, 150Php, 300Php, and 400Php respectively in the next 5 years for Stock B with a discount rate of 10%. Factoring resource constraint, which stock looks more attractive to an investor? Formula is attached in the image
Stewart Industries expects to pay a $3.00 per share dividend on its common stock at the end of the year (i.e. D1 = $3.00). The dividend is expected to grow 25 percent a year until t = 3, after which time the dividend is expected to grow at a constant rate of 5 percent a year (i.e. D3 = $4.6875 and D4 = $4.9219). The stock’s beta is 1.2, the risk-free rate of interest is 6 percent, and the market risk premium (i.e., rm –rrf) is 5 percent. What is the company’s current stock price?
The current value of BSE SENSEX is 10000 and the annualized dividend yield on the index is 5%. A six-month-futures contract on the BSE SENSEX is quoted at 10200. If the return on Treasury Bills available in the market for the same maturity is 5% and 25 % of the stocks included in the index will pay dividends during the next six months, you are required to a. Determine whether index futures is overpriced or under priced. b. Show risk-free arbitrage profits, if any, available to the investor irrespective of the value of the SENSEX on maturity with detail workings, assuming that the SENSEX on maturity can be i. 9900 orii. 10250 Solve fast please
SleazeCo stock is currently at $100 per share. There are puts and calls written on SleazeCo stock that expire in one year and have a strike price of $100. The continuously compound risk-free rate of interest is .01 (1%) per annum. The price of the call is $3.00 and the price of the put is $3.00. Is there an arbitrage opportunity? How do you know?
XYZ company's common shares are selling for P30.00 per share, and the company expects to set its next annual dividend at P1.50 per share. All future dividends are expected to grow by 6% per year, indefinitely. In addition, XYZ faces a floatation cost of 20% on new equity issues. What is the floatation-adjusted cost of equity? Express your answer in percentage.
MLK Bank has an asset portfolio that consists of $180 million of 15-year, 10.5 percent annual coupon, $1,000 bonds that sell at par. a-2. What will be the new prices if market yields change immediately by ± 2.00 percent?
EM is expected to gain a $1.40 EPS next year, dividend payout ratio will be 60 percent. The dividend is expected to grow at a 35 percent annual rate for Year 2, at a 30 percent for Year 3, at 18 percent annually for the next 5 years, and at constant percent annually after it . ROE for long term period of time is 15 percent. If the required rate of return is 12 percent, what is the value per share?
Today is January 12, 2017. The shares of XYZ Inc. are currently selling for $120 per share. The shares have an estimated volatility of 25%. XYZ Inc. is also expected to pay a dividend of $1.50 with an ex-dividend date of January 25, 2017. The risk-free rate is 6.17 percent per year with continuous compounding. Assume that one call option gives the holder the right to purchase one share. b. This European call option has a market price of $3.00. Is it correctly priced? If not, how can an investor use the put-call parity to take advantage of this arbitrage opportunity?
Today is January 12, 2017. The shares of XYZ Inc. are currently selling for $120 per share. The shares have an estimated volatility of 25%. XYZ Inc. is also expected to pay a dividend of $1.50 with an ex-dividend date of January 25, 2017. The risk-free rate is 6.17 percent per year with continuous compounding. Assume that one call option gives the holder the right to purchase one share. a. Use the Black-Scholes-Merton model to estimate the fair value of a European call option on XYZ shares, with exercise price of $125 and expiration date of March 21, 2017. (Note that 2017 is not a leap year.)
The ABC stock currently stands at 5000 and has a volatility of 20% per annum. The risk-free rate of interest is 4.25% per annum and the stock provides a dividend yield of 2.5% per annum, both with continuous compounding. Using the Black‐Scholes model, calculate the value of six-month European call and put with an exercise price of $4900.