Questions from Corporate Finance

Q: Suppose that S = $100, K = $100,

Suppose that S = $100, K = $100, r = 0.08, σ = 0.30, δ = 0, and T = 1. Construct a standard two-period binomial stock price tree using the method in Chapter 10. a. Consider stock price averages comput...

Q: Suppose XYZ is a non-dividend-paying stock. Suppose

Suppose XYZ is a non-dividend-paying stock. Suppose S = $100, σ = 40%, δ = 0, and r = 0.06. a. What is the price of a 105-strike call option with 1 year to expiration? b. What is the 1-year forward pr...

Q: Let S = $40, K = $45, σ

Let S = $40, K = $45, σ = 0.30, r = 0.08, T = 1, and δ = 0. a. What is the price of a standard call? b. What is the price of a knock-in call with a barrier of $44? Why? c. What is the price of a knock...

Q: Suppose call and put prices are given by / What

Suppose call and put prices are given by What no-arbitrage property is violated? What spread position would you use to effect arbitrage? Demonstrate that the spread position is an arbitrage.

Q: Let S = $100, K = $120, σ

Let S = $100, K = $120, σ = 30%, r = 0.08, and δ = 0. 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 option price...

Q: Suppose you observe the following par coupon bond yields: 0.

Suppose you observe the following par coupon bond yields: 0.03000 (1-year), 0.03491 (2-year), 0.03974 (3-year), 0.04629 (4-year), 0.05174 (5-year). For each maturity year compute the zero-coupon bond...

Q: Use a spreadsheet to verify the option prices in Examples 12.

Use a spreadsheet to verify the option prices in Examples 12.1 and 12.2.

Q: Consider the same 3-year swap. Suppose you are a

Consider the same 3-year swap. Suppose you are a dealer who is paying the fixed oil price and receiving the floating price. Suppose that you enter into the swap and immediately thereafter all interest...

Q: Suppose the 1-year copper forward price were $0.

Suppose the 1-year copper forward price were $0.80 instead of $1. If XYZ were to sell forward its expected copper production, what is its estimated profit 1 year from now? Should XYZ produce copper? W...

Q: Consider AAAPI, the Nikkei ADR in disguise. To answer this

Consider AAAPI, the Nikkei ADR in disguise. To answer this question, use the information in Table 23.4. a. What is the volatility of Y, the price of AAAPI? b. What is the covariance between Y and x,...