Q8) (1%) Suppose that on 27 October 2022, Wall Street Journal in New York presents the following price for 27 March 2023 call options on Microsoft stock (in $ USA) strike 75 80 85 price 11 7.96 5.5 while the annual interest rate is 4% per year. On this date (27 October 2022) the Microsoft stock was trading at $81.625. Suppose we decide that the volatility of the market is 30%. Should you buy the call option as the European one with strike price $80? Justify your answer.
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- A stock currently trades at R84 and the interest rate is 1.25%. The 6-month forward price of this stock is quoted at R85. Construct an arbitrage strategy given this scenarioWhat is the price of a European put option on a non-dividend paying stock when thestock price is K69, the strike price is K70, the risk-free rate is 5% per annum, thevolatility is 35% per annum, and the time to maturity is 6 months?9. The current stock price of a company is $54.50, the continuous annual standard deviation was 53.00%, the exercise price of an European call on the stock is $58.00, the exercise price of an European put on the stock is $58.00, the time to maturity for both options is 0.43 years, and the yield on a risk-free Treasury Bill maturing on the same date at the options is 6.72%. Determine the current prices of the call and put Anwer in excel showing the workings and formula
- A stock will pay a dividend of $3 in 4 months and $4 in 8 months. The current price of the stock is $408. If the risk-free rate for all maturities is 5.19%, what is the arbitrage profit of a 12-month forward contract on the stock if its current price is $600? Group of answer choices $230.685 $195.195 $177.45 $195.195 $221.813Suppose that the return on a U.K. treasury bill is eight percent annum and the return on a U.S. treasury bill is eight percent annum and that you had $1,000,000 earmarked for short term investment for a period of a month. In which of the securities would you place your money? (Assume you are not a speculator). Show your calculations. 1 British pound (spot) $1.7748 1 British pound (30-day futures) $1.7776Please answer both questions What is the risk premium for the stock in the table below? The risk free rate is 1.05% and the market risk premium is 5.41%. What is the expected return based on CAPM for the stock in the table below? The risk free rate is 1.05% and the market risk premium is 5.41%. The Home Depot, Inc. (HD) NYSE - NYSE Delayed Price. Currency in USD 264.55 -0.26 (-0.10%) At close: December 11 4:00PM EST summary Company Outlook Chart Conversations Stal Previous Close 264.81 Market Cap 284.815B Open 263.36 Beta (5Y Monthly) 1.05 Bid 264.15 x 1000 PE Ratio (TTM) 22.88 Ask 264.55 x 800 EPS (TTM) 11.56 Day's Range 262.65 - 265.36 Eamings Date Feb 23, 2021 52 Week Range 140.63 - 292.95 Forward Dividend & Yield 6.00 (2.27%) Volume 3,454,512 Ex-Dividend Date Dec 02, 2020 Arg. Volume 3,631,762 ly Target Est 305.06
- Q3) Omani’s company common stock is expected to pay of OMR (3) a share at the end of 2021, and expected to grow at constant rate. The market risk premium of this stock is 7%, and the stock currently sells in the market for OMR 10 a share. Assume the risk-free rate of return is 5% and the market is in equilibrium. Estimate the stock’s price at the end of 3 years?Q9 to Q10 below is based on the following information.Current Stock Price (S0) 80Strike/Exercise Price (K) 75Time to Maturity (T) of 1 year 1Risk-free Rate (r) 0.04Volatility 40%N(d1) 0.6777N(d2) 0.5245N(d1) 0.3223N(d2) 0.4755 Q9. Based on the above information and the Black-Scholes-Merton model, which of thefollowing is the correct Delta () of the European Put option?(A) 0.6777 (positive)(B) 0.5245 (positive)(C) -0.6777 (negative)(D) -0.3223 (negative)Answer: _______________ Q10. Based on the above information and the Black-Scholes-Merton model, which ofthe following is closest to the correct no-arbitrage Put Option price?(A) 8.4852(B) 16.4259(C) 11.3392(D) -16.4259Answer: _______________The prices of European call and put options on a non-dividend-paying stock with 12 months to maturity, a strike price of $120, and an expiration date in 12 months are $20 and $5, respectively. The current stock price is $130. What is the implied risk-free rate? 8.62 % 9.05 % 5.85 % 4.26 %
- Stock ABC is currently standing at £1,508. Consider the corresponding stock options that expire in 90 days. The current Treasury Bills have a risk-free annual rate 2 percent. On the market, the calls and puts listed for ABC have an exercise price of £1,550. (a) Assume there are no dividends paid for stock ABC. (i) Explain the payoff diagrams for the put & call options for both European options and American options. Explain whether an increase in volatility would have impacts on profits/payoffs diagrams of puts on stock ABC. If you are a hedger, why would you continue to buy such put options with increased uncertainty? Explain.ABC stock is currently trading at R70 per share. A dividend of R1 is expected after three monthsand another one of R1 after six months. A European call option on ABC stock has a strike priceof R65 and 8 months to maturity. Given that the risk-free rate is 10% and the volatility is 32%,compute the price of the option.A European put on Microsoft shares with an exercise price of $50 and maturity of 3 months is trading at $10. The 3-month interest rate, not annualized, is 0.4%. What is the price of Microsoft stock that makes the put break-even?