3330%20PS7

3330%20PS7 - Cornell University Fall 2009 Economics 3330:...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Cornell University Fall 2009 Economics 3330: Problem Set 7 Due 11/20/09 1. True/False/Explain State whether each of the following is true or false and explain your answer. Please limit your explanations to no more than two sentences. a. The liquidity premium on small stocks offers returns above risk-adjusted levels. b. From an options perspective, if a company takes on additional debt to buy back some of its equity at the market price, then the value of an outstanding share should increase. 2. You are interested in establishing a long position in a company. The stock of the company currently costs $100. A call option with a strike price of 100 that has six months until maturity costs $10. You have $10,000 to invest. The three portfolios you are considering are 1) all stocks, 2) all options, and 3) 100 options and Treasury bills that would pay 4% over the next six months. Complete the following charts with the value of the portfolio. Price of Stock 6 Months from Now
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 12/22/2009 for the course ECON 3330 taught by Professor Mbiekop during the Fall '08 term at Cornell.

Page1 / 2

3330%20PS7 - Cornell University Fall 2009 Economics 3330:...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online