Contemporary Engineering Economics Plus MyLab Engineering with eText -- Access Card Package (6th Edition)
6th Edition
ISBN: 9780134162690
Author: Chan S. Park
Publisher: PEARSON
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Question
Chapter 13, Problem 11P
a:
To determine
Call option.
b:
To determine
Put option.
c:
To determine
New put option.
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The price of a non-dividend paying stock is currently S = 100. Over the next year, it is expected to go up by 25% or down by 20%. The risk-free interest rate is r = 5% per annum with continuous compounding. How many units of the stock should you include in a portfolio containing a European Put option that gives the right to sell 100 units of the stock at a strike price K = 100 each, for the result of this portfolio to be independent of the price of the stock in 1-year time? Select one.
a. 0
b. 22
c. 44
d. 33
e. 11
Stock ABC has a Forward for December at: $450,
Is it reasonable that A PUT option on ABC, with a strike of $500, costs $45?
A.
No because the minimum intrinsic is $50.
B.
No, because $35 feels low for a stock with such a high price per share.
C.
Yes because Intrinsic is $40, Extrinsic is $5
D.
Yes because it depends on the distribution; that is defined by the volatility and time to maturity
The Duo Growth Company just paid a dividend of $1.00 per share. The dividend is expected to grow at a rate of 26% per year for the next three years and then to level off to 5% per year forever. You think the appropriate market capitalization rate is 21% per year.
Required:
a. What is your estimate of the intrinsic value of a share of the stock?
Note: Use intermediate calculations rounded to 4 decimal places. Round your answer to 2 decimal places.
b. If the market price of a share is equal to this intrinsic value, what is the expected dividend yield?
Note: Use intermediate values rounded to 2 decimal places. Round your answer to 2 decimal places.
c. What do you expect its price to be one year from now?
Note: Use intermediate values rounded to 4 decimal places. Round your answer to 2 decimal places.
d-1. What is the implied capital gain?
Note: Use intermediate values rounded to 2 decimal places. Round your answer to 4 decimal places.
d-2. Is the implied capital gain…
Chapter 13 Solutions
Contemporary Engineering Economics Plus MyLab Engineering with eText -- Access Card Package (6th Edition)
Ch. 13 - Prob. 1PCh. 13 - Prob. 2PCh. 13 - Prob. 3PCh. 13 - Prob. 4PCh. 13 - Prob. 5PCh. 13 - Prob. 6PCh. 13 - Prob. 7PCh. 13 - Prob. 8PCh. 13 - Prob. 9PCh. 13 - Prob. 10P
Ch. 13 - Prob. 11PCh. 13 - Prob. 12PCh. 13 - Prob. 13PCh. 13 - Prob. 14PCh. 13 - Prob. 15PCh. 13 - Prob. 16PCh. 13 - Prob. 17PCh. 13 - Prob. 18PCh. 13 - Prob. 19PCh. 13 - Prob. 20PCh. 13 - Prob. 21PCh. 13 - Prob. 22PCh. 13 - Prob. 23PCh. 13 - Prob. 24PCh. 13 - Prob. 25PCh. 13 - Prob. 1STCh. 13 - Prob. 2STCh. 13 - Prob. 3STCh. 13 - Prob. 4ST
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