1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Nina [5.8K]
3 years ago
11

The current price of a non-dividend-paying biotech stock is $140 with a volatility of 25%. The risk-free rate is 4%. For a three

-month time step:
a) What is the percentage up movement?


b) What is the percentage down movement?


c) What is the probability of an up movement in a risk-neutral world?


d) What is the probability of a down movement in a risk-neutral world?


Use a two-step tree to value a six-month European call option and a six-month European put option. In both cases the strike price is $150.
Business
1 answer:
Art [367]3 years ago
8 0

Answer:

a. u = e^(0.25√0.25)

u = e^0.125

u = 1.13314845307

u = 1.1331485

The percentage up movement is 13.31%

b. d = 1/u

d = 1/ 1.1331

d = 0.88253464

d = 0.8825

The percentage downward movement = 1 - 0.8825 = 11.75%

c. Probability of upward movement(P) = (R - d) / ( u-d)

P = (1.04 - .8825) / ( 1.1331 - 0.8825)

P = 0.6285

P = 62.85%

d. Probability of a down movement in a risk-neutral world = 1 - P

= 1 - 0.6285

= 0.3715

= 37.15%

You might be interested in
The rationale why companies offer customers credit is because: a. offering customers credit, helps with the firm's cash flow pos
Ivahew [28]

Answer:

c. allowing customers to pay with credit cards or on credit, makes it easier for them to buy, and it also attracts new customers

Explanation:

What is credit?

Credit is the amount you can borrow for a certain time.

Sales on credit means that the sale is done without the use of cash with the conditions given for a certain time limit.

Now purchasing without cash is a facility every customer enjoys. The basic objective of sales on credit is to increase the purchasing power of customer thus attracting more customers to the specific products.

Choice c is the best option.

Choice a is incorrect because cash flows involve cash as well.

Choice b is also incorrect because matching principle is not a market strategy . It is an accounting method.

The company needs increase in sales, which involves a marketing strategy.

In the matching principle the revenues are matched with expenses therefore credit sales ( revenue) will be matched with the expenses incurred to be able to make sales.

Choice d is incorrect credit sales increase accounts receivable not accounts payable.

3 0
3 years ago
Bob sells the vegetables he grows in a farmer's market. Bob is a little disorganized and has been looking for a good way to trac
olya-2409 [2.1K]

Answer:

The appropriate relationship between orders and products is a one-to-many relationship.

Explanation:

A one-to-many relationship simply means that one order by a customer can be for many products, vegetables in this instance.  When Bob receives a customer's order for products, the customer may order more than one type of vegetables because customers buying vegetables always love variety.  Therefore, the database to track the sales of vegetables may need to track one order to various datasets containing the customer's order.

8 0
3 years ago
What type of footwear protects you from chemicals and provides extra traction on slippery floors?
pishuonlain [190]
Its rubber boots which protects <span>you from chemicals and provides extra traction on slippery floors.

</span>
4 0
3 years ago
Read 2 more answers
Which of Electrolux's foreign investments would be horizontal and which would be vertical? What are the advantages of each?
Lady bird [3.3K]

Answer:

The integration or growth of a company can occur horizontally or vertically, depending on whether it acquires competing companies that develop their business in parallel (horizontal integration), or it acquires companies or businesses that are in a different stage of the production process (companies that generate raw materials, transport, marketing, etc.).

Thus, if Electrolux expands its business by acquiring a competitor such as Whirlpool, it will be a case of horizontal integration. In contrast, if Electrolux acquires a company dedicated to the marketing of products, such as Best Buy, it will be a case of vertical integration.

3 0
3 years ago
Presented below are three economic events. In each column, indicate whether the event increased, decreased, or had no effect on
Wewaii [24]

Answer:

See attached file

Explanation:

Accounting Equation Formula:

Assets = Liabilities + Stockholders' Equity

The equation shows that Assets are increased by Debits and decreased by Credits, instead, Liabilities and Stockholders´ Equity decreased by Debits and increased by Credits. In the file, Debits and Credits are represented by the word increased and decreased according to if the transaction has a positive or negative effect on each element.

6 0
4 years ago
Other questions:
  • You are angry at a friend who forgot to meet you for lunch, and you decide to write an e-mail about how it made you feel. What s
    11·1 answer
  • Joe takes his car into the repair shop to have his tires realigned. while he is waiting for his car, he sees the repairmen take
    15·1 answer
  • Which of the following are consequences of hyperinflation? Check all that apply. People spend significant time and effort buying
    5·2 answers
  • ____ are entrepreneurs who apply their creativity, vision, and risk taking within a large corporation rather than starting a com
    9·1 answer
  • An investor has purchased less than 20% of the common stock available from each of 12 different investees. As part of their fina
    5·1 answer
  • One of the first actions of President Trump was to withdraw from negotiations on establishing the TTIP. Why do you think he did
    5·1 answer
  • Today you deposited $15,000 into a 5-year CD that will pay 6 percent interest. How much will you withdraw from the account in 5
    8·1 answer
  • Which of the following statements regarding the valuing of costs and benefits is NOT​ correct? A. The first step in evaluating a
    6·1 answer
  • The CAPM is a theory of the relationship between risk and return that states that the expected risk premium on any security equa
    10·1 answer
  • A business in Italy purchased 200 Kazuri necklaces at a cost of 481 720 Kenyan
    11·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!