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Akimi4 [234]
3 years ago
14

A stock is currently priced at $52.50 a share. One year from now, the stock price is expected to be either $54 or $60 a share. T

he risk-free rate of return is 4 percent. What is the value of a 1-year call option with an exercise price of $55
Business
1 answer:
oee [108]3 years ago
7 0

Answer:

Value of 1-Year option=$0.48

Explanation:

First, we have to calculate the present value of share being priced at $54 after one year,which shall be calculated as follow:

Present value of share=54(1+4%)^-1

                                     =$51.92

Now we have to calculate the number of options which will be required to exercise for one share:

Number of options=(60-54)/(5-0)=1.2

Finally, we have to calculate the value of 1-year call options which shall be calculated as follow:

Current price of share=Number of options required for one share*Value of 1-year option+Present value of share

52.50=1.2*value of 1-Year option+51.92

1.2*value of 1-Year option=0.58

Value of 1-Year option=$0.48

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6 0
3 years ago
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3 years ago
What should you do if you think that a bill is wrong or want more information about it?
Dahasolnce [82]
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4 0
3 years ago
A free enterprise system refers to: a. Economic assets that are privately owned and exchanged in an open market. b. Property own
bazaltina [42]

Answer:

a. Economic assets that are privately owned and exchanged in an open market.

Explanation:

A free enterprise is an economy where where economic factors like price, product, and services are determined by market forces and not by the government.

It is also called capitalism, economic assets are privately owned and competition is the yardstick for market success.

The opposite of this is communism where economic factors are controlled by the government.

7 0
2 years ago
On June 30, Collins Management Company purchased land for $460,000 and a building for $520,000, paying $360,000 cash and issuing
sammy [17]

Answer:

See Explanation

Explanation:

(a)

Journal entry to record the transaction is,

Particulars                                                                  Debit      Credit

Land and Building (460000 + 520000)                 $980,000

Cash Paid                                                                           $360,000

Mortgage Payable (980,000 - 360,000)                         $620,000

We assume that 4% interest is chargeable each semiannual payment and that each subsequent payment is charged 4% on the remaining amount of principal minus any preceding principal payments.

(b)

First installment = Principal + Interest payable

= 31,000 + (620,000 * 0.04) = $55,800

(c)

Second payment = 31,000 + [(620,000 - 31000) * 0.04] = $54,560

Since the chart of accounts is not provided you can confirm the the account headings.

Hope that helps.

5 0
3 years ago
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