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Natali [406]
4 years ago
7

A hedge fund with net asset value of $71 per share currently has a high water mark of $78. Suppose it is January 1, the standard

deviation of the fund’s annual returns is 42%, and the risk-free rate is 4%. The fund has an incentive fee of 16%. a. What is the value of the annual incentive fee according to the Black-Scholes formula? (Treat the risk-free rate as a continuously compounded value to maintain consistency with the Black-Scholes formula.)
Business
1 answer:
Leto [7]4 years ago
7 0

Answer:

Answer :The annual incentive fees according to Black Scholes Formular =2.5

Explanation:

a)Find the value of call option using below parameter

current price (st)=$71

Strike price(X)=$78

Rf=4%

std=42%

time=1

value of call option=15.555

Annual incentive=16% x 15.555=2.5

The annual incentive fees according to Black Scholes Formular =2.5

(b) The value of annual incentive fee if the fund had no high water mark and it earned its incentive fee on its return in excess of the risk-free rate? (Treat the risk-free rate as a continuously compounded value to maintain consistency with the Black-Scholes formula.)

current price (st)=71

Strike price(X)=78

Rf=(e^4%)-1 = 4.08%

std=42%

time=1

value of call option=17.319

Annual incentive=16% x 17.319=2.77

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3 years ago
4.8 CAPM. The Capital Asset Pricing Model (CAPM) is a nancial model that assumes returns on a portfolio are normally distributed
loris [4]

Answer:

32.64%

Explanation:

Given Data:

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attached below is a detailed solution

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8 0
3 years ago
________ e-commerce is the online exchange between companies and individual consumers.
sweet [91]

<u>Business-to-consumer</u> e-commerce is the online exchange between companies and individual consumers.

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3 0
2 years ago
8. Matt Wayne has $20,000 to invest and would like to double his money for the purchase of a new truck. Under current market con
Diano4ka-milaya [45]

Answer:

It will take 14 years and 77 days to double the money.

Explanation:

Giving the following information:

Matt Wayne has $20,000 to invest and would like to double his money for the purchase of a new truck. The interest rate is 5 percent.

We need to find the number of years to achieve $40,000. We will use the following variation of the final value formula:

FV= PV*(1+i)^n

Isolating n:

n=[ln(FV/PV)]/ln(1+r)

n= [ln(40,000/20,000)]/ ln(1.05)= 14.21 years

To be more accurate:

0.21*365= 77

It will take 14 years and 77 days to double the money.

5 0
3 years ago
Why do people sometimes use credit to pay for items instead of just using cash?
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Bc they don’t like carrying the cash around all the tim
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