prices of various IBM options. Use the data in the figure to calculate the payoff and the profits for investments in each of the following February expiration options‚ assuming that the stock price on the expiration date is $195. a. Call option‚ X = $190. b. Put option‚ X =$190. c. Call option‚ X = $195. d. Put option‚ X =$195. e. Call option‚ X = $200. f. Put option‚ X =$200. St =$195 COST PAYOFF PROFIT CALL 6.75 195-190=5 -1.75 PUT 3 0 -3 CALL 3.65 0 -3.65 PUT 5 0 -5 CALL 1.61 0 -1.61 PUT 8
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choose between either to purchase a forward contract and lock the cost of the January US$7million or to purchase call options for the USD for $7.5million‚ and which course of action will provide the highest benefit and lowest risk possible under different exchange rates. Should the CAD depreciate with respect to the USD Pixonix costs would be higher. Question #2 Various Hedging Options: a) Purchase a forward contract Cain can eliminate exchange rate risk by engaging in a forward contract by
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INTRODUCTION: The arrival of Inspector Goole undermines the natural pathways of authority within the household. As his name suggests‚ ‘Inspector Goole‚’ seems to have supernatural power and racks up the tension through his intimidating questioning of the characters. The pace and tension are controlled by his character and the audience is carried by the dramatic which suggests he is almost god. CONCLUSION: We see the power shift in Act I as the action progress through the super knowing power
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etc.). Explain why. 5. Forward or Options? If Tiffany were to hedge the yen-dollar exchange rate risk‚ it can choose either forward contracts or options. Explain how Tiffany can hedge using forward contracts? How to hedge using options? The available forward contracts and options are described in Exhibit 8‚ assuming Tiffany can only use those derivatives to hedge. Based on what you have learned in this course‚ what are the pros and cons of using options to hedge compared to using forward contracts
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(2-3) methods of using stocks and options to create a risk-free hedge portfolio I found the research of this question to be extremely interesting. The simplest form of purchasing securities in order to reduce portfolio risk is hedging. These securities are intended to have negative correlation to the remainder of our portfolio so that it can help offset any other potential losses in our portfolio. We can hedge by buying a put option. We can buy stock with one put option with a strike of $25 and pay
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On January 1‚ 2006 Sooner or Later Inc. granted $1‚000 at-the-money employee stock options. To ensure that the company can afford to compensate their employees based on their financial performance the award will only be absolute if the revenue over the following three years is greater than 10 million dollars and if the employees are still employed with the company. Sooner or Later’s management believes that the company will have revenues in excess of 10 million dollars over the next three year period
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(2.5) points. a) The Chart on Exhibit 20-2 displays five FDA approvals and five FDA disapprovals. b) The total value of dollars of the NPV disapproval is -$100M $500M‚ 50% 3. (a) This type of call option are created whenever you face a decision that is costly to reverse. When exercising an option to invest‚ the ability to purchase a particular stock is irreversible. You can delay in purchasing the stock‚ but you are
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2014 Fall Fin 433 Quiz #3 1. Consider a portfolio consisting of a long call with an exercise price of X‚ a short position in a non-dividend paying stock at an initial price of S0‚ and the purchase of riskless bonds with a face value of X and maturing when the call expires. What should such a portfolio be worth? a. C + P – Xe-rt b. C – S0 c. P – X d. P + S0 – Xe-rt e. none of the above 2. What is the lowest possible value of a European put? a. Max(0‚ X – S0) b. Xe-rt c. Max[0‚ S0 – Xe-rt )
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Series A and Series B preferred stock of TIp-Top that it will transfer to InsureAll. Series A stock is traded publically and has a call option written by InsureAll which allows the repurchase of the stock two years after the transfer date with a fixed exercise date. The Series B preferrd stock‚ which is not publically traded‚ will be transferred to InsureAll with a call option attached to the stock allowing DrugKing to repurchase the stock from whomever owns it as long as the purchase is completed within
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Laura Martin: Real Options Valuation in the Cable Industry Case Questions 1. What is the nature of Laura Martin’s job? Define the specific problem that she is addressing. A. Laura Martin is an equity research analyst. This was a unique opportunity to demonstrate her knowledge of the drivers of value in the cable industry. She was going to reveal the value of stocks of cable industry using real options‚ which is a more realistic way of evaluating the value of a project than EBITDA multiples
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