Questions from Corporate Finance

Q: What is the fixed rate in a 5-quarter interest rate

What is the fixed rate in a 5-quarter interest rate swap with the first settlement in quarter 2?

Q: Suppose the interest rate is 0% and the stock of XYZ

Suppose the interest rate is 0% and the stock of XYZ has a positive dividend yield. Is there any circumstance in which you would early-exercise an American XYZ call? Is there any circumstance in which...

Q: Repeat the previous problem assuming that the stock pays a continuous dividend

Repeat the previous problem assuming that the stock pays a continuous dividend of 8% per year (continuously compounded). Calculate the prices of the American and European puts and calls. Which options...

Q: Repeat the previous problem for n = 50. What is the

Repeat the previous problem for n = 50. What is the risk-neutral probability that S1< $80? S1> $120? Previous Problem Let S = $100, σ = 0.30, r = 0.08, t = 1, and δ = 0. Using equation (11.12) to comp...

Q: Consider the hedging example using gap options, in particular the assumptions

Consider the hedging example using gap options, in particular the assumptions and prices in Table 14.4. a. Implement the gap pricing formula. Reproduce the numbers in Table 14.4. b. Consider the optio...

Q: A project has certain cash flows today of $1, growing

A project has certain cash flows today of $1, growing at 5% per year for 10 years, after which the cash flow is constant. The risk-free rate is 5%. The project costs $20 and cash flows begin 1 year af...

Q: Let S = $120, K = $100, σ

Let S = $120, K = $100, σ = 30%, r = 0, and δ = 0.08. a. Compute the Black-Scholes call price for 1 year to maturity and for a variety of very long times to maturity. What happens to the price as T →∞...

Q: Consider Pr(St

Consider Pr(St

Q: Suppose that S and Q follow equations (20.36)

Suppose that S and Q follow equations (20.36) and (20.37). Derive the value of a claim paying S(T )aQ(T )b by each of the following methods: a. Compute the expected value of the claim and discounting...

Q: You are offered the opportunity to receive for free the payoff

You are offered the opportunity to receive for free the payoff [Q(T ) − F0,T (Q)]× max [0, S(T ) − K] (Note that this payoff can be negative.) Should you accept the offer?