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Consider a stock with a current price of $15 that will be worth either $10 or $25 1 year from now. Assume rf = 0%
Consider a stock with a current price of $15 that will be worth either $10 or $25 1 year from now. Assume rf = 0% (annual compounding). You have invented a new derivative security called an "inverse", whose payoff in 1 year is 100 divided by the stock price, i.e., payoff =100 /S1 . If the beta of the stock is 1.2, what is the beta of this new derivative?
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