INVESTMENTS (LOOSELEAF) W/CONNECT
11th Edition
ISBN: 9781260465945
Author: Bodie
Publisher: MCG
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Chapter 21, Problem 9PS
Summary Introduction
(a)
To show:
That the range of S is 50 and P is 30. Also, we have to find the hedge ratio of the put option.
Summary Introduction
(b)
To calculate:
The payoff of three stock and two put options portfolio.
Summary Introduction
(c)
To calculate:
The present value of three stock and two put options portfolio.
Summary Introduction
(d)
To show:
The value of put option is $10.91 when the stock is currently selling at $100.
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Students have asked these similar questions
We will derive a two-state put option value in this problem. Data: S0 = 100; X = 110; 1 + r = 1.10. The two possibilities for ST are 130 and 80.a. Show that the range of S is 50, whereas that of P is 30 across the two states. What is the hedge ratio of the put?b. Form a portfolio of three shares of stock and five puts. What is the (nonrandom) payoff to this portfolio?c. What is the present value of the portfolio?d. Given that the stock currently is selling at 100, solve for the value of the put.
Construct a hedge portfolio and by using the binomial option pricing model and find the values of Pu and Pd; and P. Explain the answer and describe the hedge portfolio.
A stock currently priced at $100. One period later it can go up to $125, an increase of 25 percent, or down to $80, a decrease of 20 percent. Assume a put option is available with an exercise price of $100. Consider the example in a two-period world. The risk-free rate is 7 percent. The inputs are summarized as follows
S = 100 d = 0.80 u = 1.25 X= 100 r = 0.07
Consider the following two scenarios for the economy and the expected returns in each scenario for the market portfolio, an aggressive stock A, and a defensive stock D.
a. Find the beta of each stock. (Round your answers to 2 decimal places.)
Stock A
Stock D
b. If each scenario is equally likely, find the expected rate of return on the market portfolio and on each stock. (Enter your answers as a whole percent.)
Market Portfolio %
Stock A %
Stock D %
c. If the T-bill rate is 5%, what does the CAPM say about the fair expected rate of return on the two stocks? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)
Stock A
Stock D
d. Which stock seems to be a better buy on the basis of your answers to (a) through (c)?
Chapter 21 Solutions
INVESTMENTS (LOOSELEAF) W/CONNECT
Ch. 21 - Prob. 1PSCh. 21 - Prob. 2PSCh. 21 - Prob. 3PSCh. 21 - Prob. 4PSCh. 21 - Prob. 5PSCh. 21 - Prob. 6PSCh. 21 - Prob. 7PSCh. 21 - Prob. 8PSCh. 21 - Prob. 9PSCh. 21 - Prob. 10PS
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