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ELEN [110]
3 years ago
12

Assume that the current price of a stock is $80 and that 1 year from now the stock will be worth either $90 or $75. The exercise

price of a call option for this stock is $74. Assuming a riskless interest rate of 6% per year (and discrete compounding), what is the call option price
Business
1 answer:
ollegr [7]3 years ago
8 0

Answer: $17.71

Explanation:

Calculation of delta = (90 - 74) + (75 - 74) / 90 - 75

= 16 + 1 / 15

= 1.13

Calculation of futurevalue of portfolio = (90 * 1.13) - 16 = 85.7

Present value of portfolio = 85.7 / 1.03 = 83.20

Present value of delta share = 74 * 1.13 = 65.49

Value paid by call holder = 83.20 - 65.49 = 17.7

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Answer:

Self Interest & Invisible Hand of Laissez Faire Policy

Explanation:

Adam Smith Laissez Faire Policy - suggests that free markets are the best approach for welfare maximisation of a society, based on self interest guiding best decisions by individuals, and individual wealth & welfare maximisation implies society wealth & welfare maximisation.

The Invisible Hand of free markets corrects all the discrepancies (if any), re-guides self interest forming the basis of over all social interest. Government intervention is unnecessary & distortionary as per the theory

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3 years ago
In September 2008, the stock market fell sharply and continued to perform poorly due to the financial crisis. How did this chang
GenaCL600 [577]

Answer:

Many people's wealth is held in stocks and as the price of stocks collapsed, they lost wealth.

Imagine that this happened to you. One day you are rich and that affects your spending habits. In a matter of few days or weeks, you lose a large portion of your wealth. So now, you are less rich or even poor. So your spending habits will be altered, i.e. you will spend less.

If you consider the economy as a whole, aggregate demand will fall, resulting in a decrease of aggregate supply, and an overall decrease of the GDP.

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2 years ago
What is a compelling reason to study management? Multiple choice question. You will learn how to tailor your resume for a manage
irina1246 [14]

Management is an important managerial skill, that helps to deal with the complex nature of modern work.

<h3>What is management?</h3>

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It involves,

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4 0
2 years ago
SSG Cycles manufactures and distributes motorcycle parts and supplies. Employees are offered a variety of share-based compensati
andriy [413]

Answer:

$85.80 million.

Explanation:

The total compensation cost pertaining to the incentive stock option plan can simply be calculated by multiplying the the number shares the options permit holders to acquire by the fair value per option which is estimated by an appropriate option pricing model as given below:

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Therefore, the total compensation cost pertaining to the incentive stock option plan is $85.80 million.

7 0
3 years ago
Flexible Budget for Selling and Administrative Expenses for a Service Company. Cloud Productivity Inc. uses flexible budgets tha
Sauron [17]

Answer:

Total selling and administrative expenses budget for March are as follows:

For sales volumes of $400,000 = $327,000

For sales volumes of $500,000 = $389,000

For sales volumes of $600,000 = $451,000

Explanation:

Note: See the attached excel file for the flexible selling and administrative expenses budget for March

A flexible budget can be described as a budget that changes with the level or volume of activity of a company.

In this question, sales volume is used as the level of activity and a flexible selling and administrative expenses budget for March for sales volumes of $400,000, $500,000, and $600,000 is prepared in the attached excel file.

Download xlsx
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3 years ago
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