Questions from Corporate Finance

Q: Consider again the bet in Example 21.3. Suppose the

Consider again the bet in Example 21.3. Suppose the bet is S − $106.184 if the price is above $106.184, and $106.184 − S if the price is below $106.184. What is the...

Q: Suppose that S1 and S2 are correlated, non-dividend-

Suppose that S1 and S2 are correlated, non-dividend-paying assets that follow geometric Brownian motion. Specifically, let S1 (0) = S2(0) = $100, r = 0.06, σ1 = 0.35, σ2 = 0.25, ρ = 0.40 and T = 1. Ve...

Q: In this problem we use the lognormal approximation (see equation (

In this problem we use the lognormal approximation (see equation (11.14)) to draw one-step binomial trees from the perspective of a yen-based investor. Use the information in Table 23.4. a. Construct...

Q: Compute January 12 2004 bid and ask volatilities (using the Black

Compute January 12 2004 bid and ask volatilities (using the Black-Scholes implied volatility function) for IBM options expiring January 17. For which options are you unable to compute a plausible impl...

Q: Using Monte Carlo, compute the 95% and 99% 1

Using Monte Carlo, compute the 95% and 99% 1-, 10-, and 20-day tail VaRs for the position in Problem 26.2. Problem 26.2. Assuming a $10m investment in one stock, compute the 95% and 99% VaR for stock...

Q: Consider a firm with an F rating. a. What

Consider a firm with an F rating. a. What is the probability that after 4 years it will still have an F rating? b. What is the probability that after 4 years it will have an FF or FFF rating? c. From...

Q: Suppose a stock pays a quarterly dividend of $3. You

Suppose a stock pays a quarterly dividend of $3. You plan to hold a short position in the stock across the dividend ex-date. What is your obligation on that date? If you are a taxable investor, what w...

Q: For Figure 2.6, verify the following:

For Figure 2.6, verify the following: a. The S&R index price at which the call option diagram intersects the x-axis is $1095.68. b. The S&R index price at which the call option and forward c...

Q: Suppose the firm issues a single zero-coupon bond with time

Suppose the firm issues a single zero-coupon bond with time to maturity 3 years and maturity value $110. a. Compute the price, yield to maturity, default probability, and expected recovery (E[BT |Defa...

Q: Compute estimated profit in 1 year if Telco sells collars with the

Compute estimated profit in 1 year if Telco sells collars with the following strikes: a. $0.95 for the put and $1.00 for the call. b. $0.975 for the put and $1.025 for the call. c. $0.95 for the put a...