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- Suppose the current value of a popular stock index is 653.50 and the dividend yield on the index is 2.8%. Also, the yield curve is flat at a continuously compounded rate of 5.5%. A.If you estimate the volatility factor for the index to be 16%, use the Black-Scholes model to calculate the value of an index call option with an exercise price of 670 and an expiration date in exactly three months. You may use Appendix D to answer the question. Do not round intermediate calculations. Round your answer to the nearest cent. $ B.If the actual market price of this option is $17.40, calculate the implied volatility coefficient. Do not round intermediate calculations. Round your answer to two decimal places. %Investors expect the market rate of return this year to be 17.00%. The expected rate of return on a stock with a beta of 0.9 is currently 15.30%. If the market return this year turns out to be 15.00%, how would you revise your expectation of the rate of return on the stock? (Do not round intermediate calculations. Round your answer to 1 decimal place.)A. If a stock costs $55 one month and drops to $45 the next month, what is the expected stock price the next month, if we assume the stock follows a random walk? B. Explain both technical and fundamental analysis and what form of the efficient market hypothesis corresponds to each.
- Consider the following information on a particular stock:Stock price = $88Exercise price = $84Risk-free rate = 5% per year, compounded continuouslyMaturity = 11 monthsStandard deviation =53% per year. What What is the delta of a call option?Suppose that you are a trader at the stock market.T-Mobile’s stocks currently trade at $45 and the expectedreturn is 9%. You have information that leads you to believethat by the end of year the company’s returns will bearound 40%. Are your expectations optimal? How will yourbehavior influence the stock price?Required: Investors expect the market rate of return this year to be 19.00%. The expected rate of return on a stock with a beta of 1.2 is currently 22.80%. If the market return this year turns out to be 17.60%, how would you revise your expectation of the rate of return on the stock? (Do not round intermediate calculations. Round your answer to 1 decimal place.) Revised rate of return %
- Assume that the MILLY100 Index at close of trading yesterday was 7,300 and the daily volatility of the index was estimated as 0.8% per day at that time. The parameters in a GJR GARCH model are w = 0.000006, a = 0.09, and B = 0.90. If the MILLY100 moves by 75 points by close of trading today, what will the new volatility estimate be, per day, if the move is an increase or a decrease? Increase Decrease a. 1.0286% b. 7.5996% c. 9.0144% d. 1.0286% 1.0653% 7.6060% 7.9225% 1.4273% 0.9099% e. 0.8544%Consider the following information on a particular stock:Stock price = $88Exercise price = $84Risk-free rate = 5% per year, compounded continuouslyMaturity = 11 monthsStandard deviation =53% per year. What What is the delta of a put option?Muller's Investigative Services has stock is trading at $45 per share. The stock is expected to have a year-end dividend of $3 per share (D₁ = $3), and it is expected to grow at some constant rate, g₁, throughout time. The stock's required rate of return is 12% (assume the market is in equilibrium with the required return equal to the expected return). What is your forecast of g₁? Do not round intermediate calculations. Round the answer to two decimal places
- You have a stock trading at $100. The stock follows a lognormal distribution: with drift of 20% and volatilty of 30%. The risk free rate is 2%. What is the risk-neutral probability for a 3- month 100 put to expire in the money? Find N(-d2). Compare the results.Consider a stock with a current price of P = $27.Suppose that over the next 6 months the stockprice will either go up by a factor of 1.41 or downby a factor of 0.71. Consider a call option on thestock with a strike price of $25 that expires in6 months. The risk-free rate is 6%.(1) Using the binomial model, what are the endingvalues of the stock price? What are the payoffsof the call option?Consider a stock currently trading at $10, with expected annual return of 15% and annual volatility of 0.2. Under our standard assumption about the evolution of stock prices, what is the probability that the price of the stock in one years time will be below $9?