Explain the following paradox. A put option is a highly volatile security. If the underlying stock has a positive beta, then a put option on that stock will have a negative beta (because the put and the stock move in opposite directions). According to the CAPM, an asset with a negative beta, such as the put option, has an expected return below the risk-free rate. How can an equilibrium exist in which a highly risky security such as a put option offers an expected return below a much safer security such as a Treasury bill?
Answer to relevant QuestionsA particular stock sells for $27. A call option on this stock is available with a strike price of $28 and an expiration date in four months. If the risk-free rate equals 6% and the standard deviation of the stock’s ...What is an angel capitalist? How do the financing techniques used by angels differ from those employed by professional venture capitalists? What is the most popular form of financing (or security type) required by venture capitalists in return for their investment? Why is this form of financing optimal for both the entrepreneur and the venture capitalist? Suppose that five out of ten investments made by a VC fund are a total loss, meaning that the return on each of them is −100%. Of the ten investments, three break even, earning a 0 percent return. If the VC fund’s ...Define the types of synergy that may result from mergers. What are the sources of these synergies?
Post your question