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- A stock is trading at $80 per share. The stock is expected to have a yearend dividend of $4 per share (D1 = $4), and it is expected to grow at some constant rate, g, throughout time. The stock’s required rate of return is 14% (assume the market is in equilibrium with the required return equal to the expected return). What is your forecast of gL?Stanton Company stock is trading for 50 in a two‑time period environment, so that each relevant time period is 6 months. The stock might increase by exactly 20% in just one period or perhaps in both periods. Of course, the stock might not increase in either period. If the stock price does not increase in a given period, it will decline by 16.67 percent in that particular period. One-year options with an exercise price equal to 60 are trading on this stock. The annual riskless rate of return equals 0. a. What is the value of a put in this environment? b. What is the probability (risk-neutral probability) implied in this framework that the Stanton Company stock price will exceed 40 when options expire?A stock is currently trading at $57 and we assume a three-period binomial tree model where each period the stock can either increase by 13%, or fall by 15%. Each step in the tree is 3 months. The interest rate is 2.0% per year (continuous compounding). In this model, what is the risk-neutral probability that the stock price will go up twice and drop once over the three periods? [Provide your answer as a percentage rounded to two decimals
- On May 18, 2022, the price of BP stock was $36.00. The interest rate was 3.5% per year. What was the implicit stock volatility (if any) implied by the prices below for call options expiring October 20,2023? Draw a graph of your results. If you think you have found convergence, make sure that the implicit volatility is equal (to a tenth of a percent) in two consecutive iterations. Strike Last Price 30 6.80 32 5.10 34 3.95 35 3.37 36 2.82 38 2.00 40 1.18 42 0.70A stock is trading at $80 per share. The stock is expected to have a year-end dividend of $4 per share (D1 = $4), and it is expected to grow at some constant rate g throughout time. The stock’s required rate of return is 14% (assume the market is in equilibrium with the required return equal to the expected return). What is your forecast of g?The rate on six-month T-bills is currently 5%. Andvark Company stock has a beta 0f 1.69 and a required rate of return of 15.4%.a. According to CAPM, determine the return on the market portfolio, km. b. Is this a risky or not risky stock? Explain.
- Suppose that you are a trader at the stock market.T-Mobile’s stocks currently trade at $45 and the expectedreturn is 9%. You have information that leads you to believethat by the end of year the company’s returns will bearound 40%. Are your expectations optimal? How will yourbehavior influence the stock price?A stock is trading at $80 per share. The stock is expected to have a year-end dividend of $4 per share which is expected to grow at some constant rate g throughout time. The stock's required rate of return is 14 percent. If you are an analyst who believes in efficient markets, what would be your forecast of g?A. If a stock costs $55 one month and drops to $45 the next month, what is the expected stock price the next month, if we assume the stock follows a random walk? B. Explain both technical and fundamental analysis and what form of the efficient market hypothesis corresponds to each.
- Mac. Securities are trying to estimate the call option on the NYSE all Index, which is going to expiring in four years, contains a strike price of 375, The NYSE all index is presently settling on 350, and the volatility based on normalization that is standard deviation is 1 8% in stock settings. The annual average dividend yield is 4%, and remained constant for next six years. The financial times reported 5% rate on treasury securities. value the put option also under both European and American settings.The level of the Syldavia market index is 21,900 at the start of the year and 26,400 at the end. The dividend yield on the index is 4.7%. What is the return on the index over the year? If the interest rate is 6%, what is the risk premium over the year? If the inflation rate is 8%, what is the real return on the index over the year? Note: For all requirements, do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places.The following is part of the computer output from a regression of monthly returns on Waterworks stock against the S&P 500 Index. A hedge fund manager believes that Waterworks is underpriced, with an alpha of 1% over the coming month. Beta R-square Standard Deviationof Residuals 0.75 0.65 0.05 (i.e., 5% monthly) Required: a-1. If he holds a $12.0 million portfolio of Waterworks stock and wishes to hedge market exposure for the next month using one-month maturity S&P 500 futures contracts, how many contracts should he enter? The S&P 500 currently is at 2,000 and the contract multiplier is $50. a-2. Should he buy or sell contracts?multiple choice Sell Correct Buy b. Assuming that monthly returns are approximately normally distributed, what is the probability that this market-neutral strategy will lose money over the next month? Assume the risk-free rate is 0.8% per month. (Do not round intermediate calculations. Round your percentage answer to 2…
