FIN 534 FINAL EXAM PART 1 & 2
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Fin 534 Final Exam Part 1 & 2 1
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FIN 534 FINAL EXAM PART 1 & 2 1
Latest notes & summaries FIN 534 FINAL EXAM PART 1 & 2
PART 1
Question 1
The current price of a stock is $22, and at the end of one year its price will be either $27 or $17. The annual risk-free rate is 6.0%, based on daily compounding. A 1-year call option on the stock, with an exercise price of $22, is available. Based on the binomial model, what is the option's value? (Hint: Use daily compounding.)
$2.43
$2.70
$2.99
$3.29
$3.62
Question 2
Suppose you believe that Florio Company's stock price is going to decline from its current level of $82.50 so...
- Exam (elaborations)
- • 31 pages's •
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Fin 534 Final Exam Part 1 & 2•Fin 534 Final Exam Part 1 & 2
Preview 1 out of 31 pages
PART 1
Question 1
The current price of a stock is $22, and at the end of one year its price will be either $27 or $17. The annual risk-free rate is 6.0%, based on daily compounding. A 1-year call option on the stock, with an exercise price of $22, is available. Based on the binomial model, what is the option's value? (Hint: Use daily compounding.)
$2.43
$2.70
$2.99
$3.29
$3.62
Question 2
Suppose you believe that Florio Company's stock price is going to decline from its current level of $82.50 so...
PART 1
1. Which of the following statements is CORRECT?
Answer 
If the underlying stock does not pay a dividend, it does not make good economic sense to exercise a call option prior to its expiration date, even if this would yield an immediate profit.
Call options generally sell at a price greater than their exercise value, and the greater the exercise value, the higher the premium on the option is likely to be.
Call options generally sell at a price below their exercise value, and the greater t...
- Exam (elaborations)
- • 30 pages's •
-
FIN 534 FINAL EXAM PART 1 & 2•FIN 534 FINAL EXAM PART 1 & 2
Preview 1 out of 30 pages
PART 1
1. Which of the following statements is CORRECT?
Answer 
If the underlying stock does not pay a dividend, it does not make good economic sense to exercise a call option prior to its expiration date, even if this would yield an immediate profit.
Call options generally sell at a price greater than their exercise value, and the greater the exercise value, the higher the premium on the option is likely to be.
Call options generally sell at a price below their exercise value, and the greater t...