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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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Flannigan Company manufactures and sells a single product that sells for $450 per unit; variable costs are $300. Annual fixed co
uysha [10]

Answer:

Break-even point in units= 13,300

Explanation:

Giving the following information:

Unitary selling price= $450

Fixed cost= $870,000

Unitary variable cost= $300

Desired profit= $1,125,000

<u>To calculate the units to be sold, we need to use the break-even point with desired profit:</u>

<u></u>

Break-even point in units= (fixed costs + desired profit) / contribution margin per unit

Break-even point in units= (870,000 + 1,125,000) / (450 - 300)

Break-even point in units= 13,300

6 0
2 years ago
Bill Mason is considering two job offers. Job 1 pays a salary of $40,100 with $6,778 of nontaxable employee benefits. Job 2 pays
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Answer:

2

Explanation:

7 0
3 years ago
The list price on Boyton's catalog indicated that product A sells for $3,000, with a trade discount of 5%. Boyton sells the good
Alexeev081 [22]

Answer:

B) $2,850

Explanation:

1: Find the discount: $3,000*5% = $150

2: Subtract the discount: $3,000 - $150 = $2,850

4 0
3 years ago
In the short run, the quantity of output that firms supply can deviate from the natural level of output if the actual price leve
timofeeve [1]

Answer:

1.  Rise

2.  Increasing

3.  Rise

Explanation:

For example, the sticky-wage theory asserts that output prices adjust more quickly to changes in the price level than wages do, in part because of long-term wage contracts. Suppose a firm signs a contract agreeing to pay its workers $15 per hour for the next year, based on an expected price level of 100. If the actual price level turns out to be 110, the firm's output prices will RISE, and the wages the firm pays its workers will remain fixed at the contracted level. The firm will respond to the unexpected increase in the price level by INCREASING the quantity of output it supplies. If many firms face similarly rigid wage contracts, the unexpected increase in the price level causes the quantity of output supplied to RISE above the natural level of output in the short run.

The above explanation is the reason why the aggregate supply curve slopes upward in the short run

5 0
3 years ago
A country is said to have a _______ exchange rate when the government keeps the exchange rate against other currencies at or nea
77julia77 [94]

Answer:

Fixed

Explanation:

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3 0
3 years ago
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