suppose a stock worth $50 today is equally likely to be worth $100 or $25 a year from today. What is a fair price to pay today for the option to buy this stock a year from now?
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- Suppose that you are willing to pay $450.33 today for a share of stock which you expect to sell at the end of one year for $500.25. If you require an annual rate of return of 15 percent, what should be the estimate of the amount of the annual dividend which you expect to receive by the end of Year 1 prior to the sale of the stock? Assume that the estimated return equals the required rate of return. Options: a. $17.63 b. $1.60 c. $10.99 d. $19.25 e. $3.60Suppose you are thinking of purchasing the Luna Co.’s common stock today. If you expect Luna to pay $2.5, $2.625, $2.73, and $2.81 dividends at the end of year one, two, three, and four respectively and you believe that you can sell the stock for $40.97 at the end of year four. If you required return on this investment is 9%, how much will you be willing to pay for the stock today?Suppose you are thinking of purchasing the Moore Co.’s common stock today. If you expect Moore to pay $2.5, $2.625, $2.73, and $2.81 dividends at the end of year one, two, three, and four respectively and you believe that you can sell the stock for $40.97 at the end of year four. If you required return on this investment is 9%, how much will you be willing to pay for the stock today?
- Assume a stock price is g120, and in the next year, it will either rise by 10 percent or fall by 20 percent. The risk-free interest rate is 6 percent. A call option on this stock has an exercise price of g130. What is the price of a call option that expires in one year? What is the chance that the stock price will rise?Suppose that the current price of Roblox Corporation common stock is (RBLX) is $100. If the price of RBLX will be either $150 or $50 one year from now, what is the price of a call option with a strike price of $120 expiring one year from now? Assume that the current risk free rate is 1%. What is the risk neutral probability of the stock being $150 one year from now?You consider buying a share of stock at a price of $950. The stock is expected to pay a dividend of $10 next year, and your advisory service tells you that you can expect to sell the stock in 1 year only for $945. What is the expected rate of return?
- You are considering purchasing a stock with a $100 per year dividend and expected price in two years of $500. Your personal required return is 15%. This is only two periods, so do not drop out the expected selling price as you would for a long holding period. (a) What is your personal willingness to pay for this stock? (b) The current market price of this stock is $600. Should you buy it? (c) Now keep the current market price, expected price, holding period, and personal required return constant. Solve for the break-even dividend (e.g. the dividend at which you are indifferent between buying and not buying the stock today) assuming the dividend is constant over time. (d) Now assume everyone know that the initial dividend in t + 1 is $120. What is the growth rate necessary in the Gordon model for you to buy the stock? (e) Finally, assume you buy the stock at the price and conditions you found in part (a) and sell it at $500. What is your rate of return?Suppose you are willing to pay $30 today for a share of stock which you expect to sell at the end of one year for $32. If you require an annual rate of return of 12 percent, what must be the amount of the annual dividend which you expect to receive at the end of Year 1?A stock is expected to pay a dividend each year in the future of 40 and has a current price of 1000. Assuming Shiller’s present value model holds, what is the required rate of return on this stock?
- Assume there is a stock whose current price is $50. The stock price one year from now can be either $40 or $60. The annual risk-free rate is 5.25%. We are interested to price a call/put option which expires in a year with a strike price of $50.Eagletron's current stock price is $10. suppose that over the current year, the stock price will either increase by 100% or decrease by 50%. Also , the risk free rate is 25% (EAR). A) what is the value today of a one- year at- the- money European Put Option on Eagletron's stock?You want to invest in a stock that pays $3.50 annual cash dividends for the next ten years. At the end of the ten years, you will sell the stock for $22.50. If you want to earn 12.5% on this investment, what is a fair price for this stock if you buy it today?