1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
vazorg [7]
3 years ago
10

A stock price is currently $40. Over each of the next two three-month periods it is expected to go up by 10% or down by 10% (mea

ning, precisely, if the stock price at the start of a period is $40, it will go to $40*1.1=$44 or to $40*0.9=$36 at the end of the period and if the stock price at the start of a period is $44, it will go to $44*1.1=$48.44 or to $44*0.9=$39.6 at the end of the period). The risk-free interest rate is 12% per annum with continuous compounding. a. What is the value of a six-month European put option with a strike price of $42? b. What is the value of a six-month American put option with a strike price of $42? c. What is the value of a six-month American put option with a strike price of $45? What do you conclude about whether or not it is optimal to exercise this American option immediately (Hint: What would be the value of this American option if it were to be exercised immediately)
Business
1 answer:
ad-work [718]3 years ago
4 0

Answer:

Explanation:

The Risk neutral probability is given by

e rt − D / U-D

U=1.1

D=0.9

R=0.12

T=3/12

π u = e∧ 0.12 ∗ 3 / 12 − 0.9 /1.1 − 0.9

 =0.652

π d = 1− 0.652 = 0.348

The values of american and european options at each node is given in the following table.

                                    0.652  

                                                                                                    0  

                                                                0.81   48.4  

                                                                0.652    

                                                                0.81    

American option value     2.54         44    

probability                    0.652/0.3478'  

Option value                     2.12        2.4  

Futures price                        40           6      39.6  

                                                               0.3478    

                                                               4.76    

                                                                  36    

                                                                                           0.3478  

                                                                                           9.6  

                                                                                          32.4  

Time period                         0      3           6

the value at up node at 3 months is given by = ( 0.652∗ 0 ) + ( 0.3478 ∗ 2.4 )/e ∧0.12 ∗ 3 / 12 = 0.81

Hence, value of european put option =$2.12

Value of American put option = 2.54

You might be interested in
What is the impact of inflation on business cycles?​
harkovskaia [24]

Answer:

Inflation is the rise in the price of goods and services in an economy over a certain period. Inflation that is controlled and low generally helps an economy recover from a recession and results in increases in employment

Explanation:

mark me brainliest

4 0
2 years ago
Read 2 more answers
Using the midpoints method, calculate the price elasticity of demand of Good X using the following information: When the price o
grin007 [14]

Answer:

Explanation:

In response to the price rise from $50 to $60, the quantity demanded of product X  drops from 400 to 300 units. We know that price elasticity of demand is a measure of the responsiveness of changes in demand as a result of a price change. Thus,

% change in price = \frac{Change in price}{Average of the prices}

          = \frac{60-55}{55} = 0.1818

% Change in Quantity demanded

=\frac{Change in quantity demanded}{Average quantity demanded}

= \frac{300-400}{350}

= -0.2857

Thus,

Price elasticity of demand = \frac{percentage change in quantity demanded}{percentage change in price}

= \frac{-0.2857}{0.1818}

= -1.5715

Therefore, the price elasticity of demand = -1.5715

4 0
3 years ago
Researchers have found that during the last recession, when income fell by 6 percent, many fast-food restaurants saw their sales
vesna_86 [32]

<span>Income elasticity is obtained by dividing the percentage change in the quantity demanded of a product with by the percentage change in income. </span>

When income fell by 6 per cent and sales of many fast food restaurants increase by 8 per cent, then the income elasticity for fast food would be:

8/-6 = -1.33 

When income fell by 6 percent and sales of soda decreased by 12 percent, then the income elasticity for soda would be

<span>-12/-6=2 </span>

3 0
3 years ago
The Green Fiddle has current liabilities of $28,000, sales of $156,900, and cost of goods sold of $62,400. The current ratio is
olya-2409 [2.1K]

Answer: 83.53 days.

Explanation:

We would need to calculate the Current Assets as well as the Quick Assets.

Calculating the Current Assets we can use the Current ratio and Current Liabilities as follows,

Current Assets = Current Ratio * Current Liabilities

= 1.22 * 28,000

= $34,160

Then we calculate the Quick Assets which are essentially the most liquid assets being Cash and Cash Equivalents,

= Quick Ratio * Current Liabilities

= 0.71 * 28,000

= $19,880

Inventory will be Current Assets minus Quick Assets because Current Assets include all Current Assets whereas Quick Assets are Cash And Cash Equivalents Current Assets

= 34,160 - 19,880

= $14,280

We can then calculate the Inventory Turnover as,

= Cost of Goods sold / Inventory

= 62,400/14,280

= 4.36974789916 times.

Now we can finally calculate the days of Inventory by dividing the days in a year by the Turnover ratio. We will assume a 365 year.

= 365/4.36974789916

= 83.53 days.

It takes 83.53 days on average does it take to sell the inventory.

5 0
3 years ago
A recent Mega Millions estimated jackpot amount is $300 million which is the undiscounted sum of the 26 annuity option payments
I am Lyosha [343]

Answer:

Itis better to take the case in hand of 207,000,000 millions

Explanation:

We need to calcualte the present value of a geometric annuity-due

\frac{1-(1+g)^{n}\times (1+r)^{-n} }{r - g}

g 0.05

r 0.04

C 4,515,432

n 26

n 26

\frac{1-(1+0.05)^{26}\times (1+0.04)^{-26} }{0.04-0.05}

 127,557,727.45

As is an annuity due, we multiply by (1+r)

127,557,727.45 x (1+0.04) = 132,660,036,548

The present value of the 207,000,000 option is better as the annuity present value is around 130,000,000

4 0
3 years ago
Other questions:
  • Best Bagels, Inc. (BB) currently has zero debt. Its earnings before interest and taxes (EBIT) are $100,000, and it is a zero gro
    13·1 answer
  • How will thinking on the margin help increase the chance of long-term success for your business, even if additional competition
    6·3 answers
  • You want to go to Europe 5 years from now, and you can save $7,300 per year, beginning one year from today. You plan to deposit
    12·2 answers
  • Who is the least likely to be self-employed?
    13·2 answers
  • A defendant wants to make sure the judge sees a document that proves his innocence His attorney should add this to the blank Its
    12·1 answer
  • Replenishing the Petty Cash Fund
    15·1 answer
  • Governments often implement price ceilings to protect consumers from the high prices of essential goods and services that freque
    6·1 answer
  • What are the two factors you should consider when choosing which target date fund is best for you?
    8·1 answer
  • Which of the following statements is CORRECT? Question 9 options: The AFN equation for forecasting funds requirements requires o
    14·1 answer
  • A marketing manager, how does a focus on sustainability inform your tasks and activities?
    12·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!