Consider two European call options on the same stock with thesame strike price of $40. One option has a maturity of 1 month andthe other has a maturity of 3 months. Which option should be moreexpensive?
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- What is the current price of Tummy Ache stock if it is expected to pay a dividend of $1.26 every quarter forever, the stock's expected return is 11.63% per year, and the next dividend is expected in 3 months? $43.34 (plus or minus 10 cents) $130.01 (plus or minus 10 cents) $10.83 (plus or minus 10 cents) $38.82 (plus or minus 10 cents) the answer cannot be obtained based on the given informationThe Duo Growth Company just paid a dividend of $1.00 per share. The dividend is expected to grow at a rate of 26% per year for the next three years and then to level off to 5% per year forever. You think the appropriate market capitalization rate is 21% per year. Required: a. What is your estimate of the intrinsic value of a share of the stock? Note: Use intermediate calculations rounded to 4 decimal places. Round your answer to 2 decimal places. b. If the market price of a share is equal to this intrinsic value, what is the expected dividend yield? Note: Use intermediate values rounded to 2 decimal places. Round your answer to 2 decimal places. c. What do you expect its price to be one year from now? Note: Use intermediate values rounded to 4 decimal places. Round your answer to 2 decimal places. d-1. What is the implied capital gain? Note: Use intermediate values rounded to 2 decimal places. Round your answer to 4 decimal places. d-2. Is the implied capital gain…Stock ABC has a Forward for December at: $450, Is it reasonable that A PUT option on ABC, with a strike of $500, costs $45? A. No because the minimum intrinsic is $50. B. No, because $35 feels low for a stock with such a high price per share. C. Yes because Intrinsic is $40, Extrinsic is $5 D. Yes because it depends on the distribution; that is defined by the volatility and time to maturity
- You've estimated the following expected returns for a stock, depending on the strength of the economy: State (s) Probability Expected return Recession 0.3 -0.03 Normal 0.5 0.08 Expansion 0.2 0.13 What is the expected return for the stock? What is the standard deviation of returns for the stock?The price of a non-dividend paying stock is currently S = 100. Over the next year, it is expected to go up by 25% or down by 20%. The risk-free interest rate is r = 5% per annum with continuous compounding. How many units of the stock should you include in a portfolio containing a European Put option that gives the right to sell 100 units of the stock at a strike price K = 100 each, for the result of this portfolio to be independent of the price of the stock in 1-year time? Select one. a. 0 b. 22 c. 44 d. 33 e. 11The table below shows information for 3 stocks. Security Beta Risk-free rate Expected market return Stock 1 1.9 0.02 0.09 Stock 2 1.2 0.035 0.09 Stock 3 0.2 0.015 0.09 The risk-free rates are different because they were measured in different years. Calculate the expected (or required) return for each stock, using the Capital Asset Pricing Model (CAPM). What is the required return for stock 1? What is the required return for stock 2? What is the required return for stock 3?
- A share of stock in Enbridge Inc. pays an annual dividend of $3.34, and the dividend is expected to grow at 2%, on average, in the foreseeable future. The current market price is $44.58/share. Below are the three individuals based on risk perception by each individual (from low to high). Identify who will likely be a buyer or a seller of this stock. (Each individual currently owns 100 shares.) Individual X has a discount rate of 5% Individual Y has a discount rate of 8% Individual Z has a discount rate of 11%An entrepreneur recently learned about a new hotel business that requires an initial investment of $12M and annual cash flow of $2M in perpetuity. The appropriate discount rate is 20%. Now, consider a pretty similar scenario: an Initial investment $12M. Now, in good state, $6M annual cash flows. In a bad state, -$2M annual cash flows. Furthermore, assume that the entrepreneur wants to own at most, 1 hotel (no option to expand). - But things change when we consider the abandonment option. At date 1, the entrepreneur will know which forecast has come true. If the world is in the good state, he will keep the project alive. If bad state, he will abandon the hotel after period 1. - Now, what is the NPV of the project? - What is the value of the option to abandon?Carnes Cosmetics Co.'s stock price is $60, and it recently paid a $1.25 dividend. This dividend is expected to grow by 27% for the next 3 years, then grow forever at a constant rate, g; and rs = 14%. At what constant rate is the stock expected to grow after Year 3? Do not round intermediate calculations. Round your answer to two decimal places.
- A share of stock of A-Star Inc. is now selling for $23.50. A financial analyst summarizes the uncertainty about the rate of return on the stock by specifying three possible scenarios: Business Condition Scenario, s Probability, p(s) End of Year Price Annual Dividend High growth 1 0.35 $35 $ 4.40 Normal growth 2 0.30 27 4.00 No growth 3 0.35 15 4.00 What are the holding-period returns for a one-year investment in the stock of A-Star Inc. for each of the three scenarios? Calculate the expected HPR and standard deviation of the HPR.You have just purchased 200 shares of General Electric stock at $15 per share. You will sell the stock when its market price doubles. If you expect the stock price to increase 12% per year, how long do you expect to wait before selling the stock? (See Figure.)All else being equal, the expected cash flows of companies are considered less valuable when yields are higher. This could threaten many tech stocks because much of their earnings are expected to come further in the future. True or false.