Suppose a stock price can go up by 15 percent or down by 13 percent over the

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Suppose a stock price can go up by 15 percent or down by 13 percent over the next year. You own a one-year put on the stock. The interest rate is 10 percent, and the current stock price is $60.

(a) What exercise price leaves you indifferent between holding the put or exercising it now?

(b) How does this break-even exercise price change if the interest rate is increased?

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Principles of Corporate Finance

ISBN: 978-0072869460

7th edition

Authors: Richard A. Brealey, Stewart C. Myers

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Question Posted: Jun 09, 2011 05:31 AM

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Suppose a stock price can go up by 15 percent or down by 13 percent over the

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a Let p equal the probability of a rise in the stock ...View the full answer

Principles of Corporate Finance

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