JN Inc stock has a current market price of 46 a share The one year call on this

Jn inc stock has a current market price of 46 a share

  • Rutgers University
  • FINANCE 310
  • Notes
  • tokrause3
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53.J&N, Inc. stock has a current market price of $46 a share. The one-year call on this stock with a strike price of $55 is priced at $0.05 while the one-year put with a strike price of $55 is priced at $8.24. What is the risk-free rate of return? A.1.49 percentB. 1.82 percentC. 3.10 percentD. 3.64 percentE. 4.21 percent$55/(1 + r) = -$0.05 + $46 + $8.24; r = 1.49 percent
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AACSB: AnalyticBlooms: ApplyDifficulty: 1 EasyLearning Objective: 25-01 The relationship between stock prices; call prices; and put prices using put-call parity.Section: 25.1Topic: Put-call parity54.You invest $4,500 today at 6.5 percent, compounded continuously. How much will this investment be worth 8 years from now? A. $6,728B.$7,569C. $8,311D. $8,422E. $8,791FV = $4,500 × 2.718280.065× 8= $7,569AACSB: AnalyticBlooms: ApplyDifficulty: 1 EasyLearning Objective: 25-01 The relationship between stock prices; call prices; and put prices using put-call parity.Section: 25.1Topic: Continuous compounding55.Todd invested $8,500 in an account today at 7.5 percent compounded continuously. How much will he have in his account if he leaves his money invested for 5 years? A. $12,203B. $12,245C. $12,287D. $12,241E.$12,367FV = $8,500 × 2.718280.075× 5= $12,367AACSB: AnalyticBlooms: ApplyDifficulty: 1 EasyLearning Objective: 25-01 The relationship between stock prices; call prices; and put prices using put-call parity.Section: 25.1
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Topic: Continuous compounding56.Wesleyville Markets stock is selling for $36 a share. The 9-month $40 call on this stock is selling for $2.23 while the 9-month $40 put is priced at $5.63. What is the continuously compounded risk-free rate of return? A. 0.87 percentB. 1.11 percentC. 1.38 percentD. 1.56 percentE.2.02 percent($40 × e-R× 0.75) = -$2.23 + $36 + $5.63$40 e-0.75R= $39.40ln(e-0.75R) = ln0.985-0.75R = -0.0151R = 2.02 percentAACSB: AnalyticBlooms: ApplyDifficulty: 1 EasyLearning Objective: 25-01 The relationship between stock prices; call prices; and put prices using put-call parity.Section: 25.1Topic: Continuously compounded rate57.The stock of Edwards Homes, Inc. has a current market value of $23 a share. The 3-month call with a strike price of $20 is selling for $3.80 while the 3-month put with a strike price of $20 is priced at $0.54. What is the continuously compounded risk-free rate of return? A. 4.43 percentB. 4.50 percentC. 4.68 percentD. 5.00 percentE.5.23 percent
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($20 × e-R× 0.25) = -$3.80 + $23 + $0.54$20 e-0.25R= $19.74ln(e-0.25R) = ln 0.987-0.25R = -0.013085R = 5.23 percentAACSB: AnalyticBlooms: ApplyDifficulty: 1 EasyLearning Objective: 25-01 The relationship between stock prices; call prices; and put prices using put-call parity.Section: 25.1Topic: Continuously compounded rate
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