Mercury company stock is currently selling for $55 per share. It is expected that the stock price will
increase or decrease by 10 percent in one year. Treasury bills that will mature in one year yield 5 percent
annually. A European call option on Mercury

A call and put expire in 150 days and have an exercise price of $100. The underlying
stock is worth $ 95 and has a standard deviation of 0.25. The annual risk-free rate is
11 percent. The annual dividend yield o the stock is 2%. Use the three period
binom

1. A stock sells for $110. A call on the stock has an exercise price of $105 and expires in 43 days. If the
annual interest rate is 0.11 and the annual standard deviation of the stocks returns is 0.25, what is
the price of a European call and put option a

FIN 527 Homework Problems, Spring 2016
Due on Final Exam day
Chapter 4: Problem 7 (submit hand-written solution); prob. 8 (submit hand-solved solution); prob. 11
(submit hand-written solution for call price only); prob. 12 (submit hand-written solution);

Chapter 10
Identify the steps in the analytical model of
decision making and distinguish between the
various types of decisions people make.
Describe different individual decision styles
and the various organizational and cultural
factors that influence

CHAPTER 7
AN INTRODUCTION TO PORTFOLIO MANAGEMENT
Answers to Questions
1.
Investors hold diversified portfolios in order to reduce risk, that is, to lower the variance
of the portfolio, which is considered a measure of risk of the portfolio. A diversified