Questions from Corporate Finance

Q: The S&R index spot price is 1100 and the continuously

The S&R index spot price is 1100 and the continuously compounded risk-free rate is 5%. You observe a 9-month forward price of 1129.257. a. What dividend yield is implied by this forward price? b. Supp...

Q: What is the rate on a synthetic FRA for a 90-

What is the rate on a synthetic FRA for a 90-day loan commencing on day 90? A 180-day loan commencing on day 90? A 270-day loan commencing on day 90?

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

Suppose call and put prices are given by Find the convexity violations. What spread would you use to effect arbitrage? Demonstrate that the spread position is an arbitrage.

Q: Let S = $100, K = $95, σ

Let S = $100, K = $95, σ = 30%, r = 8%, T = 1, and δ = 0. Let u = 1.3, d = 0.8, and n = 2. Construct the binomial tree for an American put option. At each node provide the premium, ∆, and B.

Q: Let S = $100, σ = 30%, r =

Let S = $100, σ = 30%, r = 0.08, t = 1, and δ = 0. Suppose the true expected return on the stock is 15%. Set n = 10. Compute European put prices, ∆, and B for strikes of $70, $80, $90, $100, $110, $12...

Q: “Time decay is greatest for an option close to expiration.”

“Time decay is greatest for an option close to expiration.” Use the spreadsheet functions to evaluate this statement. Consider both the dollar change in the option value and the percentage change in t...

Q: Examine the prices of up-and-out puts with strikes

Examine the prices of up-and-out puts with strikes of $0.9 and $1.0 in Table 14.3. With barriers of $1 and $1.05, the 0.90-strike up-and-outs appear to have the same premium as the ordinary put. Howev...

Q: Consider a project that in one year pays $50 if the

Consider a project that in one year pays $50 if the economy performs well (the stock market goes up) and that pays $100 if the economy performs badly (the stock market goes down). The probability of t...

Q: The formula for an infinitely lived call is given in equation (

The formula for an infinitely lived call is given in equation (12.18). Suppose that S follows equation (20.20), with α replaced by r, and that E∗(dV ) = rV dt. Use It&E...

Q: ABC stock has a bid price of $40.95 and

ABC stock has a bid price of $40.95 and an ask price of $41.05. Assume there is a $20 brokerage commission. a. What amount will you pay to buy 100 shares? b. What amount will you receive for selling 1...