Questions from General Investment

Q: Suppose that JPMorgan Chase sells call options on $1.25

Suppose that JPMorgan Chase sells call options on $1.25 million worth of a stock portfolio with beta = 1.5. The option delta is .8. It wishes to hedge its resultant exposure to a market advance by buy...

Q: Return to Problem 36. Value the call option using the risk

Return to Problem 36. Value the call option using the risk-neutral shortcut described in the box in Section 21.3. Confirm that your answer matches the value you get using the two-state approach. Prob...

Q: Eagle Products’ EBIT is $300, its tax rate is 21

Eagle Products’ EBIT is $300, its tax rate is 21%, depreciation is $20, capital expenditures are $60, and the planned increase in net working capital is $30. What is the free cash flow to the firm?

Q: Return to Problem 38. a. What will be the

Return to Problem 38. a. What will be the payoff to the put, Pu, if the stock goes up? b. What will be the payoff, Pd, if the stock price falls? c. Value the put option using the risk-neutral shortcut...

Q: In each of the following questions, you are asked to compare

In each of the following questions, you are asked to compare two options with parameters as given. The risk-free interest rate for all cases should be assumed to be 4%. Assume the stocks on which thes...

Q: We will derive a two-state put option value in this

We will derive a two-state put option value in this problem. Data: S0 = 100; X = 110; 1 + r = 1.10. The two possibilities for ST are 130 and 80. a. Show that the range of S is 50, whereas that of P is...

Q: Suppose the value of the S&P 500 stock index is

Suppose the value of the S&P 500 stock index is currently 2,000. a. If the 1-year T-bill rate is 3% and the expected dividend yield on the S&P 500 is 2%, what should the 1-year maturity futures price...

Q: It is now January. The current interest rate is 2%.

It is now January. The current interest rate is 2%. The June futures price for gold is $1,500, whereas the December futures price is $1,510. Is there an arbitrage opportunity here? If so, how would yo...

Q: The multiplier for a futures contract on a stock market index is

The multiplier for a futures contract on a stock market index is $50. The maturity of the contract is 1 year, the current level of the index is 2,250, and the risk-free interest rate is .5% per month....

Q: You are a corporate treasurer who will purchase $1 million of

You are a corporate treasurer who will purchase $1 million of bonds for the sinking fund in 3 months. You believe rates will soon fall, and you would like to repurchase the company’s sinking fund bond...