Questions from Corporate Finance

Q: Suppose call and put prices are given by /

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: Repeat the option price calculation in the previous question for stock prices

Repeat the option price calculation in the previous question for stock prices of $80, $90, $110, $120, and $130, keeping everything else fixed. What happens to the initial put ∆ as the stock price inc...

Q: Repeat the previous problem, except that for each strike price,

Repeat the previous problem, except that for each strike price, compute the expected return on the option for times to expiration of 3 months, 6 months, 1 year, and 2 years. What effect does time to m...

Q: Assume K = $40, σ = 30%, r =

Assume K = $40, σ = 30%, r = 0.08, T = 0.5, and the stock is to pay a single dividend of $2 tomorrow, with no dividends thereafter. a. Suppose S = $50. What is the price of a European call option? Con...

Q: Let S = $40, K = $45, σ

Let S = $40, K = $45, σ = 0.30, r = 0.08, and δ = 0. Compute the value of knockout calls with a barrier of $60 and times to expiration of 1 month, 2 months, and so on, up to 1 year. As you increase ti...

Q: Now suppose the firm finances the project by issuing debt that has

Now suppose the firm finances the project by issuing debt that has higher priority than existing debt. How much must a $10 or $25 project be worth if the shareholders are willing to fund it?

Q: To answer this question, use the assumptions of Example 17.

To answer this question, use the assumptions of Example 17.1 and the risk-neutral valuation method (and risk-neutral probability) described in Example 17.2. a. Compute the value of a claim that pays t...

Q: Assuming a $10m investment that is 40% stock A and

Assuming a $10m investment that is 40% stock A and 60% stock B, compute the 95% and 99% VaR for the position over 1-day, 10-day, and 20-day horizons.

Q: What is E(St|St > $105) for

What is E(St|St > $105) for t = 1? How does this expectation change when you change t, σ, and r?

Q: Suppose that on any given day the annualized continuously compounded stock return

Suppose that on any given day the annualized continuously compounded stock return has a volatility of either 15%, with a probability of 80%, or 30%, with a probability of 20%. This is a mixture of nor...