Questions from General Investment

Q: You are very bullish (optimistic) on stock EFG, much

You are very bullish (optimistic) on stock EFG, much more so than the rest of the market. In each question, choose the portfolio strategy that will give you the biggest dollar profit if your bullish f...

Q: You are attempting to value a call option with an exercise price

You are attempting to value a call option with an exercise price of $100 and one year to expiration. The underlying stock pays no dividends, its current price is $100, and you believe it has a 50% cha...

Q: Consider an increase in the volatility of the stock in the previous

Consider an increase in the volatility of the stock in the previous problem. Suppose that if the stock increases in price, it will increase to $130, and that if it falls, it will fall to $70. Show tha...

Q: a. Return to Example 16.1. Use the binomial

a. Return to Example 16.1. Use the binomial model to value a one-year European put option with exercise price $110 on the stock in that example. b. Show that your solution for the put price satisfies...

Q: You are a provider of portfolio insurance and are establishing a four

You are a provider of portfolio insurance and are establishing a four-year program. The portfolio you manage is currently worth $100 million, and you promise to provide a minimum return of 0%. The equ...

Q: You would like to be holding a protective put position on the

You would like to be holding a protective put position on the stock of XYZ Co. to lock in a guaranteed minimum value of $100 at year-end. XYZ currently sells for $100. Over the next year, the stock pr...

Q: We showed in the chapter that the value of a call option

We showed in the chapter that the value of a call option increases with the volatility of the stock. Is this also true of put option values? Use the putcall parity relationship as well as a numerical...

Q: Suppose you are attempting to value a one-year maturity option

Suppose you are attempting to value a one-year maturity option on a stock with volatility (i.e., annualized standard deviation) of σ = 0.40. What would be the appropriate values for u and d if your bi...

Q: You build a binomial model with one period and assert that over

You build a binomial model with one period and assert that over the course of a year, the stock price will either rise by a factor of 1½ or fall by a factor of ⅔. What is your implicit assumption abou...

Q: The following questions have appeared on CFA examinations a. Which

The following questions have appeared on CFA examinations a. Which one of the following statements best expresses the central idea of countercyclical fiscal policy? Planned government deficits are ap...