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dmitriy555 [2]
3 years ago
5

A stock has a price of 100. It is expected to pay a dividend of $2 per share at year-end. An at-the-money European put option wi

th 1 year maturity sells for $7. If the annual interest rate is 5%, what must be the price of an at-the-money European call option on the stock with 1 year maturity.
Business
1 answer:
dusya [7]3 years ago
5 0

Answer:

$9.86

Explanation:

Suppose there was no dividend, we can use the put-call formula

C + X / (1+r)^t = S + P

Making C subject of the formula,

C = S + P - X / (1+r)^t

where

C = call premium

P = put premium

X = strike price

r = annual interest rate

t = time (in years)

S = initial price of underlying

and get

C = 100 + 7 - 100 / 1.05

C = 107 - 95.24 = 11.76

Since there was a dividend of $2 power share at year-end, so the stock price will be 100 + 2 = 102.

Hence, we have the formula

C = 100 + 7 - 102 / 1.05

C = 107 - 97.14 = 9.86

$9.86 must be the price of a 1-year at-the-money European call option of the stock.

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The ROI percentages 

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3 0
2 years ago
In working on a bid for project you have determined that $245,000 of fixed assets will be required and that they will be depreci
mote1985 [20]

Answer:

Question 1:

required investment $245,000

depreciation expense per year = ($245,00 - $23,200) / 5 = $44,360

you will also require $15,000 in working capital

annual cash costs = $68,500

what is the minimum amount of cash sales for accepting the project:

net cash flow₁ = {[(sales revenue - $68,500 - $44,360) x 0.65] + $44,360} / 1.14 = (0.65SR - $28,999) / 1.14 = 0.5702SR - $25,437.72

net cash flow₂ = {[(sales revenue - $68,500 - $44,360) x 0.65] + $44,360} / 1.14² = (0.65SR - $28,999) / 1.14² = 0.5002SR - $22,313.79

net cash flow₃ = {[(sales revenue - $68,500 - $44,360) x 0.65] + $44,360} / 1.14³ = (0.65SR - $28,999) / 1.14³ = 0.4387SR - $19,573.50

net cash flow₄ = {[(sales revenue - $68,500 - $44,360) x 0.65] + $44,360} / 1.14⁴ = (0.65SR - $28,999) / 1.14⁴ = 0.3849SR - $17,169.74

net cash flow₅ = {[(sales revenue - $68,500 - $44,360) x 0.65] + $44,360 + $15,000} / 1.14⁵ = (0.65SR - $13,999) / 1.14⁵ = 0.3376SR - $7,270.64

NPV = -initial outlay + cash flows

NPV = 0

initial outlay = cash flows

$260,000 = 0.5702SR - $25,437.72 + 0.5002SR - $22,313.79 + 0.4387SR - $19,573.50 + 0.3849SR - $17,169.74 + 0.3376SR - $7,270.64

$260,000 = 2.2316SR - $91,765.39

$351,765.39 = 2.2316SR

sales revenue = $351,765.39 / 2.2316 = $157,629.23

the closest answer is B = $155,119, but its NPV will be negative.

<u>so we have to select C = $162,515.75 that results in an NPV = $10,887. </u>

Question 2:

<u>The correct answer is D. return on equity will increase.</u>

If you lower your costs while your sales remain the same, your profits will increase as well as your ROE.  

7 0
3 years ago
3. Based on sales, what products do customers want? How accurately did the
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Answer: Market survey

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One of the ways to determine what customers want is my doing s survey. A survey would guide you through what they want. One of the ways to do this survey to get accurate answers is through questionnaire's, questionnaire's could be sent through mobile or advert or mails, asking what exactly what the customers want, from the feedback, the owner can predict accurately.

5 0
2 years ago
Fev and Company has a projected balance sheet that includes the following accounts. Cash $ ? Marketable securities 228,000 Accou
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Answer:

C. $ 344,000

Explanation:

In the balance sheet, the assets, liabilities, and stockholder equity is recorded. In this the accounting equation is used which is shown below:  

Total assets = Total liabilities + stockholder equity  

which equals to

Total assets = $1,570,000 + $2,382,000

                    = $3,952,000

And, the total assets equal to

Total assets = Cash + Marketable securities + Accounts receivable + Inventory + Non-current assets

$3,952,000 = Cash + $228,000 + $860,000 + $490,000 + $2,030,000

$3,952,000 = Cash + $3,608,000

So, the cash would be

= $344,000

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The meaning of the “To cash (Tax paid)” entry posted in the Provision for taxation account is
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Answer:

(a) Last year taxation is paid through the current year provision

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