You are faced with the probability distribution of the HPR on the stock market index fund...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You are faced with the probability distribution of the HPR on the stock market index fund given in Spreadsheet 5.1 of the text. Suppose the price of a put option on a share of the index fund with exercise price of $110 and time to expiration of 1 year is $12. a. What is the probability distribution of the HPR on the put option? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.) State of the Economy Excellent Good Poor Crash Probability 0.25 0.45 0.25 0.05 Ending Price + Dividend STOCK HPR % % % % Ending Value PUT HPR % % % % 1 2 A Purchase Price = 3 4 5 6 State of the 7 Economy 8 Boom 9 Normal growth 10 Mild recession Probability 0.25 0.45 0.25 0.05 $100 Year-End Price 126.50 110.00 89.75 46.00 D 11 Severe recession 12 Expected Value (mean) 13 Varlance of HPR 14 Standard Deviation of HPR 15 Risk Premium 16 Standard Deviation of Excess Return Cash Dividends 0.3100 0.1400 -0.0675 -0.5200 SUMPRODUCT(B8:B11, E8:E11) = 0.0976 4.50 4.00 3.50 2.00 T-Bill Rate = Deviations HPR from Mean 0.2124 0.0424 Spreadsheet 5.1 Scenario analysis of holding-period return of the mutual fund -0.1651 -0.6176 0.04 Squared Deviations Excess Returns 0.2700 0.1000 0.0273 -0.1075 0.3815 -0.5600 from Mean 0.0451 0.0018 SUMPRODUCT(B8:B11, G8:G11) = SQRT(G13) = SUMPRODUCT(B8:B11, H8:H11) = H 0.0380 0.1949 0.0576 _SQRT(SUMPRODUCT(B8:B11, 18:111)) = Squared Deviations from Mean 0.0451 0.0018 0.0273 0.3815 0.1949 You are faced with the probability distribution of the HPR on the stock market index fund given in Spreadsheet 5.1 of the text. Suppose the price of a put option on a share of the index fund with exercise price of $110 and time to expiration of 1 year is $12. a. What is the probability distribution of the HPR on the put option? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.) State of the Economy Excellent Good Poor Crash Probability 0.25 0.45 0.25 0.05 Ending Price + Dividend STOCK HPR % % % % Ending Value PUT HPR % % % % 1 2 A Purchase Price = 3 4 5 6 State of the 7 Economy 8 Boom 9 Normal growth 10 Mild recession Probability 0.25 0.45 0.25 0.05 $100 Year-End Price 126.50 110.00 89.75 46.00 D 11 Severe recession 12 Expected Value (mean) 13 Varlance of HPR 14 Standard Deviation of HPR 15 Risk Premium 16 Standard Deviation of Excess Return Cash Dividends 0.3100 0.1400 -0.0675 -0.5200 SUMPRODUCT(B8:B11, E8:E11) = 0.0976 4.50 4.00 3.50 2.00 T-Bill Rate = Deviations HPR from Mean 0.2124 0.0424 Spreadsheet 5.1 Scenario analysis of holding-period return of the mutual fund -0.1651 -0.6176 0.04 Squared Deviations Excess Returns 0.2700 0.1000 0.0273 -0.1075 0.3815 -0.5600 from Mean 0.0451 0.0018 SUMPRODUCT(B8:B11, G8:G11) = SQRT(G13) = SUMPRODUCT(B8:B11, H8:H11) = H 0.0380 0.1949 0.0576 _SQRT(SUMPRODUCT(B8:B11, 18:111)) = Squared Deviations from Mean 0.0451 0.0018 0.0273 0.3815 0.1949
Expert Answer:
Answer rating: 100% (QA)
To determine the probability distribution of the holdingperiod return HPR on the put option we need ... View the full answer
Related Book For
Statistics For Business Decision Making And Analysis
ISBN: 9780321890269
2nd Edition
Authors: Robert Stine, Dean Foster
Posted Date:
Students also viewed these finance questions
-
Consider the data: x 3 4 5 6 7 y 8 13 12 14 16 a. Sketch a scatter plot. b. If one pair of (x, y) values is removed, the correlation for the remaining four pairs equals 1. Which pair is it? c. If...
-
3 4 5 6 7 8 9 10 11 12 13 A 14 Cost of the Asset 15 Life of the Asset in Years 16 Book Value of the Asset after 5 years 17 Depreciable Basis 18 Yearly depreciation 19 After tax Salvage Value in year...
-
3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Mo's Motor Corp. issued $ 380,000 of 7%, 5-year bonds on April 1, 2021. Interest is payable semi-annually on April 1 and October 1. On April 1, 2023,...
-
Suppose there are two identical forest plots except that one will be harvested and left as is while the second will be cleared after the harvest and turned into a housing development. In terms of...
-
How should the residual value of an operating asset be treated when the straight-line method is used? How should it be treated when the double-declining-balance method is used?
-
For the network of Fig. 7.104, determine: a. IDQ and VGSQ b. VDS. c VD. p-18 V 2.2 k 1 Dss Vaso 0 0.51 k
-
What are three pieces of information about corporate bonds that you could find in the bond section of a newspaper?
-
Presented below are the financial statements of Nosker Company. NOSKER COMPANY Income Statement For the Year Ended December 31, 2014 Sales revenue ..............$242,000 Cost of goods sold...
-
Four analysts cover the stock of Medicine Inc. One forecasts a 5% return for the coming year. The second expects the return to be -5%. The third predicts a 10% return. The fourth expects a 3% return...
-
This is a new manufacturing corporation that issued $50000 common stock for cash on the first day. All overhead expenses are paid immediately by cash. To make it easy, there are no other operating...
-
The president of Digital Equipment Corporation discovered that his company was having a problem with counter-productive product groups who were working selfishly rather than cooperating with one...
-
Q3. What is the after tax cost of finance using the 27.5% p.a. company tax rate? Q4. Including the capital repayments what is the total amount to be repaid over 3 years?
-
Mark Adams grew up always working with his father in a workshop in their backyard. This lead him to pursue carpentry as his career. He incorporated Mini Wooden Toys Company (MWTC) 10 years ago and he...
-
6. (5 Marks) A debt of $2000 plus interest at 10% compounded semi-annually is due at the end of 6 years. If $300 is paid at the end of one year, what two equal payments, one at the end of year 2 and...
-
During 2 0 2 2 , Jasmine ( age 1 2 ) received $ 6 , 5 0 0 from a corporate bond. She also received $ 6 0 0 from a savings account established for her by her parents. Jasmine lives with her parents...
-
Show the balance sheet presentation for the bond issue at December 31, 2022, using (1) the 103 selling price, and then (2) the 98 selling price. (Enter account name only and do not provide...
-
A patient is classified as having gestational diabetes if their glucose level is above 140 milligrams per deciliter (mg/dl) one hour after a sugary drink is ingested. Rebecca's doctor is concerned...
-
Separate variables and use partial fractions to solve the initial value problems in Problems 18. Use either the exact solution or a computer-generated slope field to sketch the graphs of several...
-
Apple, Dell, IBM, and Microsoft are well known in the computer industry. If the computer industry is doing well, then we might expect the stocks of all four to increase in value. If the industry goes...
-
Internet search engines report many hits, but getting on the first page is critical for a business. A study surveyed 1,232 people from a U.S. online consumer panel in 2002 and independently surveyed...
-
This data file contains a variety of accounting and financial values that describe 324 companies operating in the information sector in 2010. The largest of these provide telephone services. One...
-
6. Rebecca Reyher wrote (and copyrighted) a children's book entitled My Mother Is the Most Beautiful Woman in the World. The story was based on a Russian folktale told to her by her own mother. Years...
-
8. Question: DatagraphiX manufactured and sold computer graphics equipment that allowed users to transfer large volumes of information directly from computers to microfilm. Customers were required to...
-
7. Roger Schlafly applied for a patent for two prime numbers. (A prime number cannot be evenly divided by any number other than itself and 1. For example: 1, 2, 3, 5, 7, 11, 13.) Schlafly's numbers...
Study smarter with the SolutionInn App