Question 1 NewCrest is looking to invest at most $500,000, The investment can be divided among three options. The return on each option depends on the economic outlook, which is shown in Table 1. For example, if the economic outlook is bright, investing SI in option I will generate a gain of $3, and investing $1 in option II will result in a loss of $5. Table 1: Return per dollar invested in the different options Return per dollar invested in option Economic outlook I Bright Gloomy III 3 -2 -5 6. -3 Axel, a business executive, proposed two alternatives to NewCrest. One is investing S100,000 in option 1, $200,000 in Il and $150,000 in III. The other is investing $60,000 in option I, $100,000 in II and $125,000 in II. NewCrest takes a conservative approach to decision-making. That is, it chooses the alternative that maximizes the minimum return produced by the two outcomes of the economic outlook. Discuss among the two alternatives proposed by Axel, which one NewCrest will choose. Please write clearly alternatives, states of nature and payoffs in a payoff (a)

Question 1 NewCrest is looking to invest at most $500,000, The investment can be divided among three options. The return on each option depends on the economic outlook, which is shown in Table 1. For example, if the economic outlook is bright, investing SI in option I will generate a gain of $3, and investing $1 in option II will result in a loss of $5. Table 1: Return per dollar invested in the different options Return per dollar invested in option Economic outlook I Bright Gloomy III 3 -2 -5 6. -3 Axel, a business executive, proposed two alternatives to NewCrest. One is investing S100,000 in option 1, $200,000 in Il and $150,000 in III. The other is investing $60,000 in option I, $100,000 in II and $125,000 in II. NewCrest takes a conservative approach to decision-making. That is, it chooses the alternative that maximizes the minimum return produced by the two outcomes of the economic outlook. Discuss among the two alternatives proposed by Axel, which one NewCrest will choose. Please write clearly alternatives, states of nature and payoffs in a payoff (a)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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K Capital asset pricing model (CAPM) For the asset shown in the following table, use the capital asset pricing model to find the required return. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Risk free rate, Re 2% The required return for the asset is (Round to two decimal places) Market return, f 8% CONTE Beta, b 0.2
Question 1 A call option has an implied volatility of 45% and a Vega of $3.2. The call is currently trading at $7.67. What would the price be if implied volatility was to increase to 50%? Please show your calculations. Discuss your result.
DONE IN EXCEL especify how to donthe graph step by step okease 5. (a) Use rate of return analysis to decide which one will you select if your MARR is 14% per year? (b) Graph interest rate vs. present value for both option 1 and 2. (c) Discuss how your selection between option 1 and 2 will change when MARR is changed and at which interest rate the two options are the same economically. The following two alternatives are mutually exclusive. Annual Benefit Salvage Value Alternative Initial Life, Cost years 4. Option 1 Option 2 $42,000 $45,000 $10,000 $11,500 $4,000 $4,200 6.
Consider a put option on a stock that currently sells for £100, but may rise to £120 or fall to £80 after 1 year. The risk free rate of return is 10%, and the exercise price is £90. (a) Calculate the value of the put option using the risk-neutral valuation relationship (RNVR). Explain the reasoning behind your calculations.
Suppose the market risk premium is 6.7% and the risk-free interest rate is 4.9%. Calculate the cost of capital of investing in a project with a beta of 1.3. Question content area bottom Part 1 The cost of capital is enter your response here%. (Round to two decimal places.)
Q2: Given the following inputs for YMMV: Interest rate 3.25 Dividend rate 3.00 Spot Price Volatility (%) 30.21 12.00 Strike Price 30.00 Expiry (months) T Option type 12 European Put a) Compute u, d, Pup; Pdn, Construct a 3 step tree and price the option.
Capital asset pricing model (CAPM) For the asset shown in the following table, use the capital asset pricing model to find the required return. (Click on the icon here O in order to copy the contents of the data table below into a spreadsheet.) ne Risk-free Market rate, R return, rm Beta, b nts 4% 0.7 1% The required return for the asset is %. (Round to two decimal places.) eТext edia Librai ial Calculat er Resource Enter your answer in the answer box and then click Check Answer. Check Answer mic Study ules Clear All All parts showing 10: DExercise(14); ools > This course (Introduction to Finance (FIN-101-D02) Distance Spring 2021) is hased on Zutter/Smart Princinles of Managerial Finance Rrief Re 4/13 O Type here to search insert
Suppose you construct a strategy based on options on a stock that is currently selling for $100. The strategy is as follows: Buy one call option having an exercise price of $95. Sell two calls having an exercise price of $100. Buy one call option having an exercise price of $105. All of the options are written on the same stock and all have the same expiration date. Compute the payoff (the dollars you receive) from this strategy at the expiration date for each of the following alternative stocks prices: $90, $95, $98, $100, $102, $105, and $110. What additional information would be required to determine whether your strategy had been profitable? What is the name of this strategy?
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Label the following for this diagram: a. Name of options payoff b. Identify whether positive or negative premium c. Identify breakeven point d. What is the profit or loss when stock price is S60 at maturity e. Suppose you have this options position, should you exercise your right (if any) assuming that the stock price is $60 at maturity? Option Payoffs and Profits Long put $40 $20 $0 Option Payoff Option Profit Exerche Price $20 S40 $20 $40 S60 $80. Stock Price At Maturity Payoff and Profit
Capital asset pricing model (CAPM) For the asset shown in the following table, use the capital asset pricing model to find the required return. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Risk-free rate, RF 9% The required return for the asset is %. (Round to two decimal places.) Market return, m 14% Beta, b 1.4
Suppose you are an investor with a choice between three securities that are identical in every way except in terms of their rates of return and risk. Which investment provides the highest expected return? Investment A: total return= 10% with profitability 50% total return= 20% with profitability 50% Investment B: total return= 12% with profitability 50% total return= 18% with profitability 50% Investment A: total return= 5% with profitability 60%

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