Current share price is $1.50 Call option exercise price is $1.80 in 3 months Risk free interest rate is 10% p.a. Standard deviation of rate of return on share is 40% Mary owns 1,000 shares. Devise a delta hedge to protect against changes in the share price.
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- The shares of TIC Ltd. are currently priced at $ 415 and call option exercisable in three months' time has an exercise rate of $ 400. Risk free interest rate is 5% p.a. and standard deviation (volatility) of share price is 22%. Based on the assumption that TIC Ltd. is not going to declare any dividend over the next three months, what is the price of call option? Solve it on excel.Misuraca Enterprise’s current stock price is $45 per share. Call optionsfor this stock exist that permit the holder to purchase one share at an exercise price of $50.These options will expire at the end of 1 year, at which time Misuraca’s stock will be sellingat one of two prices, $35 or $55. The risk-free rate is 5.5%. As an assistant to the firm’streasurer, you have been asked to perform the following tasks to arrive at the value of thefirm’s call options.a. Find the range of values for the ending stock price and the call option at the option’sexpiration in 1 year.b. Equalize the range of payoffs for the stock and the option.c. Create a riskless hedged investment. What is the value of the portfolio in 1 year?d. What is the cost of the stock in the riskless portfolio?e. What is the present value of the riskless portfolio?f. From your answers in parts d and e, what is the value of the firm’s call option?Kendra Corporation's preferred shares are trading for $27 in the market and pay a $4.10 annual dividend. Assume that the market's required yield is 14 percent. a. What is the stock's value to you, the investor? b. Should you purchase the stock?
- its urgent An investor currently holds 1,000 shares of QQQ, the Power Shares NASDAQ 100 ETF, priced at $105.78/share. The investor would like to hedge the risk associated with the position in the short-term. QQQ puts with a strike price of 102.50 and expiring in two months currently have a premium of $1.18. Call options with the same expiration and a strike price of 107 currently have a premium of $1.03. Explain how the investor could hedge the downside risk of QQQ by either purchasing the 102.50 put, or by creating a range forward (purchasing the 102.50 put and selling the 107 call). Compare and contrast the two alternative hedges. Remember, each option contract covers 100 shares, the investor would need 10 contracts to cover their position in QQQ.(a) Donald is considering the merits of two securities. He is interested in the common shares ofA Co. and B Inc. The expected monthly rate of return of securities is shown below:State of Affair Probability Stock A Stock BBoom 0.1 40% -20%Normal 0.5 20% 8%Recession 0.4 -10% 15%At the time of purchase, the market value is $70/share for A and $50/share for B. Donaldplans to invest 10,000 shares of Stock A and 6,000 shares in Stock B.(i) Compute the portfolio weights of Stock A and Stock B. (ii) Compute the expected returns of Stock A and Stock B. (iii) Assume that the covariance between Stock A and Stock B is -28%2(0.0028). Computethe expected rate of return and variance of rate of return of Donald’s portfolio.(iv) If the risk-free rate is 2%, the market risk premium is 18% and the beta of Stock A is0.75, estimate the required and expected rates of return of Stock A. Should Donaldinvest in Stock A? Show the calculations.Pioneer's preferred stock is selling for $44 in the market and pays a $3.10 annual dividend. a. If the market's required yield is 8 percent, what is the value of the stock for that investor? b. Should the investor acquire the stock?
- A speculator sells a stock short for $71 a share. The company pays a $2.50 annual cash dividend.After a year has passed, the seller covers the short position at $63. If the margin requirement is55 percent, what is the percentage return earned on the investment? Redo the calculations, assuming the price of the stock is $78 when the investor closes theposition. Based on your calculations to both scenarios, what generalization can be inferred?Assume a $100 million AUM Long/Short Equity fund manager enters the following trades at the beginning and end of the year. Bought $100 million of ABC at an opening price per share of $100, beta of 1.5, current price of $110. Sold short $100 million of XYZ at an opening price of $100, beta of 1.0, current price of $105. There is a $2 per share dividend on ABC and a $1 dividend on XYZ. Borrow fee is 1%. What is the actual trading profit or loss of the fund?A stock sells for $15 per share. You purchase 100 shares for $15 a share (i.e., for $1,500), andafter a year the price rises to $18.75 a) What will be the percentage return on your investment ifyou bought the stock on margin and the margin requirement was 65 percent? (Ignore commissions, dividends, and interest expense.) b) Rather than selling for $18.75, determine the percentage return on your investment if the price of the stock falls to $12.30 Based on your answers to both questions, what generalization on the use of marginaccounts can be inferred?
- Give typing answer with explanation and conclusion The XYZ Corporation stock currently sells for $52/share. The premium for a put option expiring in four weeks is $2.07. Suppose you buy 5 contracts of this put option. What is your maximum gain? (Hint: One option is called a contract, and each contract represents 100 shares of the underlying stock. Exchanges quote options prices in terms of the per-share price, not the total price an investor pays to own the contract.) A) $22,715 B) $26,000 C) $24,965 D) $23,750An investor buys $8,000 worth of a stock priced at $40 per share using 50% initial margin. The broker charges 6% on the margin loan and requires a 30% maintenance margin. In 1 year the investor has interest payable and gets a margin call. At the time of the margin call the stock's price must have been ________. Question 32 options: $29.77 $32.45 $20 $30.291. You purchase 100 shares for $50 a share ($5,000), and after a yearthe price rises to $60. What will be the percentage return on yourinvestment if you bought the stock on margin and the marginrequirement was? a.25 percent b.50 percent c.75 percent 2. Repeat Problem 1 to determine the percentage return on yourinvestment but in this case suppose the price of the stock falls to$40 per share. What generalization can be inferred from youranswers to Problems 1 and 2? 3. How many years will it take for 197000 dollars to grow to 554000 dollars if it is invested in an account with a quoted annual interest rate of 8 percent with monthly compounding interest?
