Call ” . A covered call is a financial market transaction in which the seller of call options owns the corresponding amount of the underlying instrument‚ such as shares of a stock or other securities. If a trader buys the underlying instrument at the same time the trader sells the call‚ the strategy is often called a "buy-write" strategy. In equilibrium‚ the strategy has the same payoffs as writing a put option. The basic goal of a covered call is to create income and reduce risk. 2. How could
Premium Stock Investment Stock market
biblical times but it is more feasible to look at the history in the past couple of centuries (“A Brief History of Derivatives” 6). In 1570‚ the Royal Exchange opened in London for forward contracting and in 1690‚ options began trading on securities in London. It was not until 1790 though that options began trading on securities in the United States (“A Brief History of Derivatives” 6). Today‚ numerous companies utilize many different kinds of derivatives on several financial markets. So what exactly
Premium Derivative Derivatives Futures contract
points) A non-dividend-paying stock with a volatility of 30% per annum is currently trading at $60. Let r 4% . a) Using the 1-step binomial tree model‚ calculate the value of a 6-month European put option with X $75 b) Using the 2-step binomial tree model‚ calculate the value of a 6-month American put option with X $75 . 1 5. (20 points) Suppose S (current stock index) 1600‚ r 10%‚ 20%‚ and q 4% . An investor has a portfolio which is worth $10‚000‚000 with 2 . Suppose the investor
Premium Futures contract Forward contract Option
Dividends Ch 22: Net Advantage of Leasing (NAL) Break-even Lease Range of Lease Payments Ch. 23 M&A with cash M&A with stock swap Ch. 24 Read a futures quote Read an option quote Create a simple hedge Ch. 25 Types of options and payoffs Intrinsic and time value Factors influencing option value Convertible bonds Warrants Chapter 15 Probably one of the easier chapters. Make sure you read it over because there is a lot of detail there that might show up
Premium Stock Corporate finance Futures contract
The Agency Cost Problem or Principal-Agent Problem‚ which is believed‚ arises from the separation of ownership and control‚ could be mitigated in many ways. In their paper Jensen and Meckling (1976) mention that if a company fully owned by its managers‚ they will work on maximizing its value. But if a fraction of this equity owned by managers is sold to outsiders‚ the risk borne by them now will have fewer fractions than before. This will be one of the main reasons for management to act on maximizing
Premium Management Option Finance
8 Valuing Risky Cash Flows 9 Introduction to derivatives. 10 Pricing Derivatives 11 Pricing of Multiperiod‚ Risky Investments 12 Where To Get State Price Probabilities? 13 Warrants 14 The Dynamic Hedge Argument 15 Multiple Periods in the Binomial Option Pricing Model 16 An Application: Pricing Corporate Bonds 17 Are capital structure decisions relevant? 18 Maybe capital structure affects firm value after all? 19 Valuation Of Projects Financed Partly With Debt 20 And What About Dividends? 21 Risk And
Premium Net present value Bond Time value of money
Page 1 Question 1.1. (TCO B) Which of the following statements concerning the MM extension with growth is NOT CORRECT? (a) The tax shields should be discounted at the unlevered cost of equity. (b) The value of a growing tax shield is greater than the value of a constant tax shield. (c) For a given D/S‚ the levered cost of equity is greater than the levered cost of equity under MM’s original (with tax) assumptions. (d) For a given D/S‚ the WACC is greater than the WACC under MM’s original
Premium United States dollar Foreign exchange market Currency
Their graph is reproduced as Exhibit 12. Alternative Solutions To manage the exposure to weather risk UGG managers explored several options: 1. Retentions The retentions approach meant continuing operating as they had been and not trying to reduce their weather exposure. Retention exposed their profitability to large swings due to the weather. This option made the UGG’s financial perform will be very fluctuate. The high fluctuation is a bad news for investor. 2. Weather
Premium Insurance Risk Risk management
2000 people (2003) from 25 nations. * The pay is performance related and among the highest in the airline industry (Annual Report 2004‚ p. 5). Travel concessions and participation in the share option program is granted to all employees. In 2003 over 30% (639 in total) of employees took part in the stock option program - the average pay per employee was about 53.000 (Annual Report 2004‚ p. 21). * CEO Michael O’Leary has significantly shaped Ryanair. 2. Physical resources * Ryanair operates 72 aircrafts
Premium Airline Ryanair Strategic management
Antamina project to me at the beginning of class. Make sure that your bid conforms to bidding structure set forth in the case. Then prepare a memo addressing the following questions: 1) How would we express the right to develop a mine as an option? a. What is the underlying? What is the strike‚ or exercise price? What is the maturity in this case? b. What if we get 2 years out and we learn that the PV of a developed mine turns out to be 0? What do we do at that point?
Premium Option Strike price Derivative