. 1) You have three European 3-Month XYZ calls with exercise prices 100, 120 and 130. The...
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1) You have three European 3-Month XYZ calls with exercise prices 100, 120 and 130. The calls are at $8, 5 and 3, respectively. Do wou see any arbitrage opportunity? Justify your answer. 2) You have XYZ trading at $42. European 6-month 40 calls and puts are traded at: call put bid/ask 5 / 5.5 2.75 / 3.25 Assuming the risk free rate is 0%, do you see any arbitrage opportunity? Justify your answer. 3) Create a portfolio with the following payoffs: 2 St if St < 20 60-St if 20< St < 40 St-20 if 40< St 4) The value of a firm is 150 that can go up or down by 20% per period for two periods. The risk free rate is 3% per period. There is zero-coupon debt maturing at the end of the second period. The face value of the debt is 100. What is the WACC of the firm if the cost of equity is 16% and the tax rate is 30%? 5) Show that options are riskier than the underlying assets. 1) You have three European 3-Month XYZ calls with exercise prices 100, 120 and 130. The calls are at $8, 5 and 3, respectively. Do wou see any arbitrage opportunity? Justify your answer. 2) You have XYZ trading at $42. European 6-month 40 calls and puts are traded at: call put bid/ask 5 / 5.5 2.75 / 3.25 Assuming the risk free rate is 0%, do you see any arbitrage opportunity? Justify your answer. 3) Create a portfolio with the following payoffs: 2 St if St < 20 60-St if 20< St < 40 St-20 if 40< St 4) The value of a firm is 150 that can go up or down by 20% per period for two periods. The risk free rate is 3% per period. There is zero-coupon debt maturing at the end of the second period. The face value of the debt is 100. What is the WACC of the firm if the cost of equity is 16% and the tax rate is 30%? 5) Show that options are riskier than the underlying assets.
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Answer for 1 Yes there is arbitrage opportunity Given X1100 8 X2120 5 X3130 3 then we have 3X2X12X3 The boundary condition would be 3X2X12X3 0 Since 1... View the full answer
Related Book For
Fundamentals of corporate finance
ISBN: 978-0470876442
2nd Edition
Authors: Robert Parrino, David S. Kidwell, Thomas W. Bates
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