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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- Suppose you are bullish on stock SPYR. It is trading at $388.55 on September 19,2022, but you believe the price will rise in the near future. You put $20,000 towards thepurchase of 100 shares of stock SPYR and borrow the remaining cost from your broker. Yourbroker requires a maintenance margin level of 15%. What is the range of stock prices suchthat you receive a margin call? Assume the borrowing rate is zero regardless of the actualholding period. Round your answer to two decimal places. Detailed explanation using formulas, not excel. A. $221.82 or lowerB. $163.96 or lowerC. $235.29 or lowerD. $173.91 or lowerUse the following data for a fictitiously named company OPPS to answer the questions that follow: — The current stock price S is $23. — The time to maturity T is six months. — The continuously compounded, risk-free interest rate r is 5 percent per year. — European option prices are given in the following table: Strike Price Call Price Put Price K1 = $17.5 6.00 0.10 K2 = 20 4.00 0.50 K3 = 22.5 2.00 1.00 K4 = 25 1.00 2.50 You buy a call option with strike price K2 = 20 and sell a call option with strike price of K3 = 22.5. Then which of the following statements is INCORRECT? The derivative has zero-profit when the stock price at expiration is $21.5. You have set up a call spread. You have set up a bullish spread. The maximum loss is –$2 for a stock price at expiration less than or equal to $20. The maximum profit is $0.5 for a stock price at expiration greater than or equal to $22.5.Please 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
- Suppose that a stock price is currently 35 dollars, and it is known that four months from now, the price will be either 51 dollars or 29 dollars. Find the value of a European call option on the stock that expires four months from now, and has a strike price of 39 dollars. Assume that no arbitrage opportunities exist and a risk-free interest rate of 10 percent.Answer =dollars.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.Consider these futures market data for the June delivery S&P 500 contract, exactly one year from today. The S&P 500 index is at 1,950, and the June maturity contract is at F0 = 1,951.a. If the current interest rate is 2.5%, and the average dividend rate of the stocks in the index is 1.9%, what fraction of the proceeds of stock short sales would need to be available to you to earn arbitrage profits?b. Suppose now that you in fact have access to 90% of the proceeds from a short sale. What is the lower bound on the futures price that rules out arbitrage opportunities?c. By how much does the actual futures price fall below the no-arbitrage bound?d. Formulate the appropriate arbitrage strategy, and calculate the profits to that strategy.
- It is July 16. A company has a portfolio of stocks worth $100 million. The beta of theportfolio is 1.2. The company would like to use the December futures contract on a stock index to change the beta of the portfolio to 0.5 during the period July 16 to November 16. Theindex futures price is currently 2,000 and each contract is on $250 times the index. (a) Whatposition should the company take? (b) Suppose that the company changes its mind anddecides to increase the beta of the portfolio from 1.2 to 1.5. What position in futurescontracts should it take?Consider an underlying stock worth $100 today and will either increase by 25 % or decrease by 20 % in value in six months. In the following six months, it will either increase by 25 % or decrease by 20 %. The risk-free rate semi-annually is 1 %. a ) What is the price of a European put with a strike price of $ 105? b ) What is the price of an American put with a strike price of $ 105?Suppose that a stock price is currently 49 dollars, and it is known that one month from now, the price will be either 8 percent higher or 8 percent lower. Find the value of an American call option on the stock that expires one month from now, and has a strike price of 51 dollars. Assume that no arbitrage opportunities exist, and a risk-free interest rate of 7 percent.
- Suppose that a stock price is currently 56 dollars, and it is known that five months from now, the price will be either 22 percent higher or 22 percent lower. Find the value of a European put option on the stock that expires five months from now, and has a strike price of 55 dollars. Assume that no arbitrage opportunities exist, and a risk-free interest rate of 6 percent.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 formulaThe 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 %