i. ii. The following table lists prices of options on Apple's stock. Stock Exercise Put Time...
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i. ii. The following table lists prices of options on Apple's stock. Stock Exercise Put Time to Exercise Price Price (months) 1 1 Monthly Call Interest Price rate 120 1% 122 1% a. Using the information above, derive the two missing prices. b. How can you produce a bear call spread using the two calls above? What is the price of this bear call spread? Apple Apple Stock Price 126 126 2 ? ? 6 Read the following statements. For each statement, first state whether it is true or false. Then explain your reasoning. a. XYZ reported a profit of $270 million for 2020. At the same time, their share price dropped by 10% in the same year. The fact that the stock market reacted 111. negatively to positive earnings suggests that it is not informationally efficient. b. Your friend Jonny made a total return of 100% in 2020 by investing in GameStop, beating the market return by a big margin. In the same year, your friend Sammy made a total return of 5% by investing in government bonds, much lower than the market return in 2020. Given that Jonny outperformed Sammy substantially, Jonny must be a better investor! c. Managers make superior returns on their purchases of their company's stock. This violates the strong form of market efficiency Both Firm A and Firm B earn £20 per share every year. Firm A's equity has a beta of 0.5 and Firm B's equity has a beta of 1.5. The expected market return is 10% per year and the risk-free rate is 2% per year. Firm A pays out all its earnings to equityholders. Firm B retains half its earnings and pays out the other half to equityholders. a. What are the required rates of return for A and B's equity? b. Suppose that the ROE is 15% for Firm B. The first dividend will be paid one year from today. Calculate the current share price for both Firm A and Firm B. Why are the two prices different? i. The following table lists prices of options on Apple's stock. Stock Time to Exercise Stock Put Monthly Call Exercise Price Price Price Interest Price (months) rate Apple 1 120 126 2 1% ? Apple 1 122 126 ? 1% 6 ii. a. Using the information above, derive the two missing prices b. How can you produce a bear call spread using the two calls above? What is the price of this bear call spread? Read the following statements. For each statement, first state whether it is true or false. Then explain your reasoning. a. XYZ reported a profit of $270 million for 2020. At the same time, their share price dropped by 10% in the same year. The fact that the stock market reacted ... 111. negatively to positive earnings suggests that it is not informationally efficient. b. Your friend Jonny made a total return of 100% in 2020 by investing in GameStop, beating the market return by a big margin. In the same year, your friend Sammy made a total return of 5% by investing in government bonds, much lower than the market return in 2020. Given that Jonny outperformed Sammy substantially, Jonny must be a better investor " c. Managers make superior returns on their purchases of their company's stock. This violates the strong form of market efficiency Both Firm A and Firm B earn £20 per share every year. Firm A's equity has a beta of 0.5 and Firm B's equity has a beta of 1.5. The expected market return is 10% per year and the risk-free rate is 2% per year. Firm A pays out all its earnings to equityholders. Firm B retains half its earnings and pays out the other half to equityholders. a. What are the required rates of return for A and B's equity? b. Suppose that the ROE is 15% for Firm B. The first dividend will be paid one year from today. Calculate the current share price for both Firm A and Firm B. Why are the two prices different? i. ii. The following table lists prices of options on Apple's stock. Stock Exercise Put Time to Exercise Price Price (months) 1 1 Monthly Call Interest Price rate 120 1% 122 1% a. Using the information above, derive the two missing prices. b. How can you produce a bear call spread using the two calls above? What is the price of this bear call spread? Apple Apple Stock Price 126 126 2 ? ? 6 Read the following statements. For each statement, first state whether it is true or false. Then explain your reasoning. a. XYZ reported a profit of $270 million for 2020. At the same time, their share price dropped by 10% in the same year. The fact that the stock market reacted 111. negatively to positive earnings suggests that it is not informationally efficient. b. Your friend Jonny made a total return of 100% in 2020 by investing in GameStop, beating the market return by a big margin. In the same year, your friend Sammy made a total return of 5% by investing in government bonds, much lower than the market return in 2020. Given that Jonny outperformed Sammy substantially, Jonny must be a better investor! c. Managers make superior returns on their purchases of their company's stock. This violates the strong form of market efficiency Both Firm A and Firm B earn £20 per share every year. Firm A's equity has a beta of 0.5 and Firm B's equity has a beta of 1.5. The expected market return is 10% per year and the risk-free rate is 2% per year. Firm A pays out all its earnings to equityholders. Firm B retains half its earnings and pays out the other half to equityholders. a. What are the required rates of return for A and B's equity? b. Suppose that the ROE is 15% for Firm B. The first dividend will be paid one year from today. Calculate the current share price for both Firm A and Firm B. Why are the two prices different? i. The following table lists prices of options on Apple's stock. Stock Time to Exercise Stock Put Monthly Call Exercise Price Price Price Interest Price (months) rate Apple 1 120 126 2 1% ? Apple 1 122 126 ? 1% 6 ii. a. Using the information above, derive the two missing prices b. How can you produce a bear call spread using the two calls above? What is the price of this bear call spread? Read the following statements. For each statement, first state whether it is true or false. Then explain your reasoning. a. XYZ reported a profit of $270 million for 2020. At the same time, their share price dropped by 10% in the same year. The fact that the stock market reacted ... 111. negatively to positive earnings suggests that it is not informationally efficient. b. Your friend Jonny made a total return of 100% in 2020 by investing in GameStop, beating the market return by a big margin. In the same year, your friend Sammy made a total return of 5% by investing in government bonds, much lower than the market return in 2020. Given that Jonny outperformed Sammy substantially, Jonny must be a better investor " c. Managers make superior returns on their purchases of their company's stock. This violates the strong form of market efficiency Both Firm A and Firm B earn £20 per share every year. Firm A's equity has a beta of 0.5 and Firm B's equity has a beta of 1.5. The expected market return is 10% per year and the risk-free rate is 2% per year. Firm A pays out all its earnings to equityholders. Firm B retains half its earnings and pays out the other half to equityholders. a. What are the required rates of return for A and B's equity? b. Suppose that the ROE is 15% for Firm B. The first dividend will be paid one year from today. Calculate the current share price for both Firm A and Firm B. Why are the two prices different?
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Answer a To derive the missing prices we need to apply the putcall parity relationship which states ... View the full answer
Related Book For
Principles of Corporate Finance
ISBN: 978-0072869460
7th edition
Authors: Richard A. Brealey, Stewart C. Myers
Posted Date:
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