Q: Consider a perpetual call option with S = $50, K
Consider a perpetual call option with S = $50, K = $60, r = 0.06, σ = 0.40, and δ = 0.03. a. What is the price of the option and at what stock price should it be exercised? b. Suppose δ = 0.04 with al...
See AnswerQ: A $50 stock pays a $1 dividend every 3 months
A $50 stock pays a $1 dividend every 3 months, with the first dividend coming 3 months from today. The continuously compounded risk-free rate is 6%. a. What is the price of a prepaid forward contract...
See AnswerQ: Verify that equation (21.12) satisfies the Black-
Verify that equation (21.12) satisfies the Black-Scholes equation. What is the boundary condition for which this is a solution?
See AnswerQ: Using the information in the previous problem, find the price of
Using the information in the previous problem, find the price of a 5-year coupon bond that has a par payment of $1,000.00 and annual coupon payments of $60.00.
See AnswerQ: Suppose you short the S&R index for $1000 and
Suppose you short the S&R index for $1000 and buy a 950-strike call. Construct payoff and profit diagrams for this position. Verify that you obtain the same payoff and profit diagram by borrowing $931...
See AnswerQ: Suppose that oil forward prices for 1 year, 2 years,
Suppose that oil forward prices for 1 year, 2 years, and 3 years are $20, $21, and $22. The 1-year effective annual interest rate is 6.0%, the 2-year interest rate is 6.5%, and the 3-year interest rat...
See AnswerQ: Using Table 6.6, what is your best guess about
Using Table 6.6, what is your best guess about the current price of gold per ounce?
See AnswerQ: Supposing the effective quarterly interest rate is 1.5%, what
Supposing the effective quarterly interest rate is 1.5%, what are the per-barrel swap prices for 4-quarter and 8-quarter oil swaps? (Use oil forward prices in Table 8.9.) What is the total cost of pre...
See AnswerQ: Let S = $100,K = $95, r
Let S = $100,K = $95, r = 8%, T = 0.5, and δ = 0. Let u = 1.3, d = 0.8, and n = 1. a. Verify that the price of a European call is $16.196. b. Suppose you observe a call price of $17. What is the arbit...
See AnswerQ: a. Suppose the March Year 1 forward price were $3
a. Suppose the March Year 1 forward price were $3.10. Describe two different transactions you could use to undertake arbitrage. b. Suppose the September Year 1 forward price fell to $2.70 and subseque...
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