Please answering the two attached files. Need help, please .

Week 5 Discussion "Financial Options and Weighted Average Cost of Capital (WACC)" Please respond to the following: Determine two to three (2-3) methods of using stocks and options to create a risk-free hedge portfolio can be created. Support your answer with examples of these methods being used to create a risk-free hedge portfolio. * From the scenario, create a unique hypothetical weighted average cost of capital (WACC) and rate of return. Recommend whether or not the company should expand, and defend your position. Week 5 Discussion "Financial Options and Weighted Average Cost of Capital (WACC)" Please respond to the following: * From the scenario, create a unique hypothetical weighted average cost of capital (WACC) and rate of return. Recommend whether or not the company should expand, and defend your position. Weighted Average Cost of Capital is defined as a calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All capital sources- common stock, preferred stock, bonds and any other long-term debt-are included in a WACC calculation. All else equal, the WACC of a firm increases as the beta and rate of return on equity increases, as an increase in WACC notes a decrease in valuation and higher risks. A sample of some WACC's are: 1. 2. 3. 4. Equity shares only Equity and preference shares only Equity and Debentures only Equity shares, preference shares and debentures. I would say to make it unique offer 5% would be corporate stocks, 40% would be corporate bonds, 35% would be Stock options and 20% would be friends and family stock options. I would say, yes the company should expand. Determine two to three (2-3) methods of using stocks and options to create a risk-free hedge portfolio can be created. Support your answer with examples of these methods being used to create a risk-free hedge portfolio Method 1Hedging using call options Delta prediction Using a Delta of 0.8474 and a stock price decline of $1: 1 1,000 0.8474 number of options Number of options - 1,000 / 0.8474 - 1,180.08 - 1,180.08 / 100 - 12. You should write 12 call options with a $45 (current stock price) strike to hedge your stock. You own 1,000 shares of XYZ stock AND you want protection from a price decline. XYZ Shares fall by $1so, you lose $1,000. What about the value of your option position? At the new XYZ stock price of $49, each call option is now worth $5.37a decrease of $.83 for each call ($83 per contract). Because you wrote 12 call option contracts at $6.20 (rounded), your call option gain was $996 = ($6.20 - $5.37) 12 100. Your call option gain nearly offsets your loss of $1,000. Why is it not exact? 1. Call Delta falls when the stock price falls. 2. Therefore, you did not sell quite enough call options Method 2 Hedging using Put options Using a Delta of -0.1526 and a stock price decline of $1 1 1,000 - 0.1526 number of options Number of options - 1,000 / - 0.1526 6,553.08 6,553.08 / 100 66. You should buy 66 put options with a strike of $45 to hedge your stock. XYZ Shares fall by $1so, you lose $1,000. What about the value of your option position? At the new XYZ stock price of $49, each put option is now worth $.70an increase of $.17 for each put ($17 per contract). Because you bought 62 put option contracts at $.53 (rounded), your put option gain was $1,122 = ($.70 - $.53) 66 100. Your put option gain more than offsets your loss of $1,000. Why is it not exact? 1. Put Delta also falls (gets more negative) when the stock price falls 2. Therefore, you bought too many put optionsthis error is more severe the lower the value of the put delta. 3. To get closer: Use a put with a strike closer to at-the-money Week 5 Discussion "Financial Options and Weighted Average Cost of Capital (WACC)" Please respond to the following: * From the scenario, create a unique hypothetical weighted average cost of capital (WACC) and rate of return. Recommend whether or not the company should expand, and defend your position. Weighted Average Cost of Capital is defined as a calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All capital sources- common stock, preferred stock, bonds and any other long-term debt-are included in a WACC calculation. All else equal, the WACC of a firm increases as the beta and rate of return on equity increases, as an increase in WACC notes a decrease in valuation and higher risks. A sample of some WACC's are: 1. 2. 3. 4. Equity shares only Equity and preference shares only Equity and Debentures only Equity shares, preference shares and debentures. I would say to make it unique offer 5% would be corporate stocks, 40% would be corporate bonds, 35% would be Stock options and 20% would be friends and family stock options. I would say, yes the company should expand. Determine two to three (2-3) methods of using stocks and options to create a risk-free hedge portfolio can be created. Support your answer with examples of these methods being used to create a risk-free hedge portfolio Method 1Hedging using call options Delta prediction Using a Delta of 0.8474 and a stock price decline of $1: 1 1,000 0.8474 number of options Number of options - 1,000 / 0.8474 - 1,180.08 - 1,180.08 / 100 - 12. You should write 12 call options with a $45 (current stock price) strike to hedge your stock. You own 1,000 shares of XYZ stock AND you want protection from a price decline. XYZ Shares fall by $1so, you lose $1,000. What about the value of your option position? At the new XYZ stock price of $49, each call option is now worth $5.37a decrease of $.83 for each call ($83 per contract). Because you wrote 12 call option contracts at $6.20 (rounded), your call option gain was $996 = ($6.20 - $5.37) 12 100. Your call option gain nearly offsets your loss of $1,000. Why is it not exact? 1. Call Delta falls when the stock price falls. 2. Therefore, you did not sell quite enough call options Method 2 Hedging using Put options Using a Delta of -0.1526 and a stock price decline of $1 1 1,000 - 0.1526 number of options Number of options - 1,000 / - 0.1526 6,553.08 6,553.08 / 100 66. You should buy 66 put options with a strike of $45 to hedge your stock. XYZ Shares fall by $1so, you lose $1,000. What about the value of your option position? At the new XYZ stock price of $49, each put option is now worth $.70an increase of $.17 for each put ($17 per contract). Because you bought 62 put option contracts at $.53 (rounded), your put option gain was $1,122 = ($.70 - $.53) 66 100. Your put option gain more than offsets your loss of $1,000. Why is it not exact? 1. Put Delta also falls (gets more negative) when the stock price falls 2. Therefore, you bought too many put optionsthis error is more severe the lower the value of the put delta. 3. To get closer: Use a put with a strike closer to at-the-money