1. American Express Co. (AXP) pays a dividend of $1.16 a share each quarter. If you choose not to invest in American Express, you could also get a risk free interest rate of 4%. How much is a share of AXP stock worth if the dividend were expected to grow at 2% annually? What assumptions were needed to do this problem?
2. Suppose we think the spot price of bananas will be $954/metric ton in 3 months. Bananas are selling for $922 in the futures market. How can use this futures contract to speculate?
3. Assume you have a put option on a common stock from Nike, Inc. (NKE). NKE currently trades at $65. The put option has a strike price of $62 and the premium is $4.45. What are the intrinsic value and the time value of the option? What factors play a role in determining each?