The current level of the SPX stock index is 4,475. You expect that the index will experience a significant drop in the next 4 months. What would be the option strategy to profit from this drop:
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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?d4) Assume that the MLIK100 Index at close of trading yesterday was 4,000 and the daily volatility of the index was estimated as 0.8% per day at that time. The parameters in a GJR GARCH model are ω = 0.000005, α = 0.08, = 0.04 and β = 0.92. Where is the asymmetry parameter. If the MLIK100 moves by 50 points by close of trading today, what will the new volatility estimate be, per day, if the move is an increase or a decrease?If the stock market index is at a level of 1,120 and the one-year forward on the index is 1,210, what is the implied repo rate in continuously-compounded terms (assuming zero dividends on the index)? (a) 5.72% (b) 6.52% (c) 7.72% (d) 8.62%
- Suppose the current value of a popular stock index is 653.50 and the dividend yield on the index is 2.8%. Also, the yield curve is flat at a continuously compounded rate of 5.5%. A.If you estimate the volatility factor for the index to be 16%, use the Black-Scholes model to calculate the value of an index call option with an exercise price of 670 and an expiration date in exactly three months. You may use Appendix D to answer the question. Do not round intermediate calculations. Round your answer to the nearest cent. $ B.If the actual market price of this option is $17.40, calculate the implied volatility coefficient. Do not round intermediate calculations. Round your answer to two decimal places. %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.The level of the Syldavian market index is 21,600 at the start of the year and 26,100 at the end. The dividend yield on the index is 4.3%. a. What is the return on the index over the year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) b. If the interest rate is 5%, what is the risk premium over the year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) c. If the inflation rate is 7%, what is the real return on the index over the year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
- A stock is expected to pay a dividend of $1.27 at the end of the year. The required rate of return is rs = 14.57%, and the expected constant growth rate is g = 2.6%. What is the stock's current price?Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72. Group of answer choicesA stock analyst at JP Dealers believes that a stock will earn the following returns next period depending on the state of the economy. Given the information below, what is the expected return on the stock? State of Economy Probability Return if State Occurs Depression 30% -10% Normal 50% 11% Boom 20% 18% Enter answer in decimal form, rounded to 4th digit, as in "0.1234"If you pay K95 per share, what is the most money you could lose over the year? (3 marks) (e) Stock Initial Price Final Price Shares (millions) ABC K25 K30 20 XYZ K100 K90 1 (1) Determine the portfolio initial and final value and the percentage change in portfolio value (2) Calculate the initial and final price-weighted index and the percentage change in the index. Explain the weaknesses of the measure above (4) Calculate the market-value weighted index and the percentage change in the index. Compare that to the return of a portfolio that holds K500 of ABC stock for every K100 of XYZ stock(an index portfolio)
- 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 0.70Stanton 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?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?
