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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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Which of the following is true about multicollinearity?
Komok [63]

Answer:

d. It is best measured using the statistic variance inflation factor (VIF).

Explanation:

Multicollinearity is an important issue in multiple regression model, having many independent/ explanatory variables. Multicollinearity is the situation in which two or more independent variables are highly correlated. It is problematic because it increases the standard error of independent variable coefficient & undermines its statistical significance

Variance Inflation Factor [VIF] is a check & corrective measure of multicollinearity.  

  • VIF as a multicollinearity check : It quantifies the correlation between one explanatory variable with other explanatory variables.VIF = 1 implies there is no multicollinearity (correlation between independent variables); VIF upto 5  implies there is moderate multicollinearity (correlation between independent variables). VIF > 5 implies high multicollinearity (correlation between independent variables)
  • VIF as a multicollinearity correction : Calculating  Var (\beta j ) = σ^2 / [TSS j (1 - R^2j)] ; where TSS = total sum of square of variable j , σ^2 =  j variance, R^2 j = R^2 from regressing all other independent variable on variable j
3 0
3 years ago
Sally opened her own business and resigned from a job paying $25,000 per year. Her savings acccount pays 8% interest, but she wi
DiKsa [7]

Answer:

A) They would be indifferent, as Sally's income net of costs equals $25,000.

Explanation:

Sally's economic profit = accounting profit - opportunity costs

  • accounting profit = $12,000
  • opportunity costs = $25,000 - $15,000 in lost salaries + $2,000 (lost investment revenue) = $12,000

economic profit = $12,000 - $12,000 = $0

Since the economic profit is $0, Sally should be indifferent between running her own business or working for someone else.

7 0
2 years ago
Oahu Industries' average total assets for the year are $4,000,000, its average total stockholders' equity for the year are $3,00
Mandarinka [93]

Answer:

20%

Explanation:

Return on assets is a profitability ratio that shows how much in net income a company is able to generate from its assets.

It is a financial measure that shows the net profit a company is able to generate per $1 invested in assets.

Mathematically,

Return on asset = net income/average total asset

= $800,000/$4,000,000

= 0.2

= 20%

This means that the company's management is a to generate a net income of 20 cents for every $1 invested in assets.

8 0
3 years ago
Although humans made stone tools for 200,000 years the most sophisticated form and last complete stone tool kit is the ________,
Margarita [4]

Although humans made stone tools for 200,000 years the most sophisticated form and last complete stone tool kit is the <u>crude stone tools </u>represented by: the awl, atlatl and bow & arrow.

<h3 /><h3>What were crude stone tool?</h3>

Any tool that is partially or totally fashioned out of stone is considered a stone tool in the broadest definition. Even if there are still societies and cultures that rely on stone tools, most of them are related to extinct prehistoric (especially Stone Age) cultures.

Archaeologists frequently research these prehistoric societies, and the examination of stone tools is known as lithic analysis. To deepen our understanding of the cultural ramifications of stone tool use and production, ethnoarchaeology has been a useful research field.

Arrowheads, spearheads, hand axes, and querns are just a few examples of the numerous tools made from stone throughout history. Stone can be ground into tools or it can be shaped by a flintknapper into knapped implements.

Learn more about stone tool

brainly.com/question/1446731

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8 0
1 year ago
If you wanted to build a structure on a river bank, you should build the structure __________ to maximize its lifetime.
Marina CMI [18]

Answer:

Above the point bar

Explanation:

channelization

Straightened sections of the river channel are lined with concrete to increase the rate of flow and reduce bank collapse

Advantages of channelization

Improves rate of flow

Benefits transportation

Reduces bank collapse

6 0
2 years ago
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