Walmart stock is priced at $130. Using an annual volatility of 30%, you estimate that it...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Walmart stock is priced at $130. Using an annual volatility of 30%, you estimate that it has a chance of going up by a factor of 1.16 or going down by a factor of 0.86 over the next 3 months. Assume interest rate is 1% (continuously compounded). You are interested in a European call option on Walmart stock with a strike of 140 and expiring in 3 months. Using the 1-step binomial option pricing model, you set up a replicating portfolio using shares of the underlying stock and investing in bonds. (Refer to Example 17.1 and follow the same steps. Just as was discussed during the lecture, keep 4 decimal places at every step, including for the final answer.) How many shares of stock do you need to invest in? Walmart stock is priced at $130. Using an annual volatility of 30%, you estimate that it has a chance of going up by a factor of 1.16 or going down by a factor of 0.86 over the next 3 months. Assume interest rate is 1% (continuously compounded). You are interested in a European call option on Walmart stock with a strike of 140 and expiring in 3 months. Using the 1-step binomial option pricing model, you set up a replicating portfolio using shares of the underlying stock and investing in bonds. (Refer to Example 17.1 and follow the same steps. Just as was discussed during the lecture, keep 4 decimal places at every step, including for the final answer.) How many shares of stock do you need to invest in?
Expert Answer:
Answer rating: 100% (QA)
To determine the number of shares of stock needed to invest in the replicating por... View the full answer
Related Book For
Understanding Business Ethics
ISBN: 9781506303239
3rd Edition
Authors: Peter A. Stanwick, Sarah D. Stanwick
Posted Date:
Students also viewed these finance questions
-
13. What is a lower bound for the price of 3-month call option on a non- dividend-paying stock when the stock price is $50, the strike price is $45, and the 3-month risk-free interest rate is 8%?...
-
6. Use the same set of information given in the problem above. (a) Use S&P 500 future prices to calculate the implied dividend yield on S&P 500. For simplicity, assume you can borrow or deposit money...
-
Ivanhoe Company was formed on July 1, 2018 It was authorized to issue 285,500 shares of $10 par value common stock and 95,400 shares of 8 $25 par value, cumulative and nonparticipating preferred...
-
Compute the least aggregate deferral using the partner information below. Requirements: Clearly identify the requirements being addressed. Show all calculations within the cells of an Excel...
-
How would the wage rate and employment for the Rustenburg miners be determined in a competitive market? Impala Platinum has sacked 17,000 South African miners at its Rustenburg mine because they took...
-
A car rental agency has 19 compact cars and 12 intermediate-size cars. If four of the cars are randomly selected for a safety check, what is the probability of getting two of each kind?
-
We-Rescue-Dogs Kennel had a labor cost budget of $ 100,000 for the year. It expected its staff costs related to grooming, feeding, walking, and so on to vary in direct proportion with the number of...
-
The field of project management is extremely complex. To be successful, a project manager must be familiar with a variety of tools, methodologies, and information. The definition of a project's...
-
We'll compare and contrast some of the most popular social media platforms that businesses use for marketing. 1) Choose three of the following social media platforms: Facebook, Twitter, Instagram,...
-
On Juans twenty-sixth birthday, he deposited $7,500 in a retirement account. Each year thereafter, he deposited $1,000 more than the previous year. Using a gradient series factor, determine how much...
-
Reconsider the county commissioners evaluation of three projects in Problem 14. Take the facts as given, except now suppose the commissioner can commit the county to renewing these investments, even...
-
Piyush has recently inherited 20 million INR (Indian rupees) from his late uncle Scrooge. To keep Piyush from spending his money immediately, Scrooge made arrangements for the inheritance to be...
-
You deposit $X in an account on your twenty-fifth, thirtieth, and thirty-fifth birthdays. The account pays 9 percent. You intend to withdraw your savings in 10 equal annual withdrawals on your...
-
A cash flow profile starts with \($2\),000 and increases by \($1\),000 each year up to \($21\),000 at time 20. Then it starts again with \($21\),000 at time 21 and decreases by \($1\),000 each year...
-
Use the power series 1 = 1 + x to determine a power series for the function, centered at 0, f(x) = n=0 00 = (1)"x", Ix| < 1 4 (x + 1) dxlx+1 Determine the interval of convergence. (Enter your...
-
On 1 July 2018, Parent Ltd acquired all the shares of Son Ltd, on a cum-div. basis, for $2,057,000. At this date, the equity of Son Ltd consisted of: $ 1,000,000 Share capital 500 000 shares...
-
Why is there such concern about protecting children from marketing and advertising?
-
There was a unique buzz at the 2012 South by Southwest Technology Conference. It was not related to the latest video game system, nor was it related to the latest smart phone. No, the unique buzz was...
-
Is green marketing just a fad? Explain your view.
-
A truck is traveling at a constant \(25 \mathrm{~m} / \mathrm{s}\) when a motorcycle speeds past at a constant \(40 \mathrm{~m} / \mathrm{s}\). On which vehicle, if either, is the magnitude of the...
-
Sketch the \(\sum F_{x}(t)\) curve for the vector sum of forces exerted on the object whose \(x\) component of momentum is plotted in Figure P8.3. Curve sections are numbered for reference. Data from...
-
You wish to move a crate. (a) Is there a minimum value for the magnitude of the pushing force you have to exert to set the crate in motion? (b) Is there a minimum value for the magnitude of the...
Study smarter with the SolutionInn App