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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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A person is arrested for stealing company documents and says, "yes, i did steal the documents, and i am willing to go to jail fo
aliya0001 [1]
The person is using the post-conventional level of morality under the social contract driven category. This level of morality is greatly exhibited by individuals who are willing to disobey what the society deems right if it is against his own principles and ethics. For this example, the person didn't care if the society deemed that it is wrong to steal, he pursued his own principles since he believed that many people will benefit from what he has done.
3 0
3 years ago
The expected return on a riskless asset is greater than zero due to A. an expected return for delaying consumption. B. irrationa
Sophie [7]

Answer:

A. an expected return for delaying consumption.

Explanation:

When investors has option of a riskless asset, it is assumed that demand for it will be high. So investors rush to take advantage of the opportunity, leading to returns.

For example when one puts his money in the bank, this is considered a riskless asset. He will expect returns for not using his funds immediately ( delayed consumption)

4 0
3 years ago
Which of the following is an unintended consequence of the rise of the primary and caucus system? Question 3 options:
Andre45 [30]

Answer:

a. Sometimes candidates unpopular with the party leadership reach the top.

Explanation:

Under the primary system there is voting on the ballots which is secret in nature and under the caucus system people vote after listening to the individual nominees and then accordingly to the candidate they like.

In this manner, the candidates who are not even belonging to some recognized or popular parties are in leadership as their individual speech is too alluring to the people present for voting that they vote for that specific candidate.

Thus, the correct answer is:

Statement a.

3 0
3 years ago
Pestro manufactures a herbicide that is used in the parks in Metroville. After the parks were sprayed with the herbicide, a grou
Free_Kalibri [48]

Answer:

d. bring suit against Pestro under Section 402A even though there is no privity.

Explanation:

Section 402A enforces strict liability for physical harm that is caused a by the product sold to a buyer by a seller.

It states that if a seller sells a defective product that is unreasonably dangerous to an end user, the seller will be liable for any physical harm that results from its use.

Privity is when a contractual relationship exists between different parties in a transaction.

In the given scenario even without a privity the parents of the children and the dogs can bring suit against Pestro under Section 402A even though there is no privity.

They don't have to have a direct contractual relationship with Pestro.

4 0
2 years ago
Sheffield Corp. had 205000 shares of common stock, 20300 shares of convertible preferred stock, and $1580000 of 4% convertible b
Ahat [919]

Answer:

Diluted earnings per share for 2021 is: <u>$2.19 per share</u>.

Explanation:

Amount of increase in net income if bonds are converted = Total value of convertible bonds * Bond rate * (100% - Tax rate) = $1580000 * 4% * (100% - 35%) = $41,080

Total earnings available to Equity Shareholders = Net income + Amount of increase in net income if bonds are converted = $599000 + $41,080 = $640,080

Number of shares of common stock = 205,000

Number of common shares obtainable from preferred stock = 39,800

Number of common shares obtainable from convertible bonds = (Total value of convertible bonds / $1,000) * 30 = ($1580000 / $1,000) * 30 = 47,400

Total number of shares outstanding = Number of shares of common stock + Number of common shares obtainable from preferred stock + Number of common shares obtainable from convertible bonds = 205,000 + 39,800 + 47,400 = 292,200

Diluted earnings per share = Total earnings available to Equity Shareholders / Total number of shares outstanding = $640,080 / 292,200 = $2.19 per share

Therefore, we have:

Diluted earnings per share for 2021 is: <u>$2.19 per share</u>.

6 0
2 years ago
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