Open Ended Questions (Show Calculations to Get Any Credit)

Q1. Please collect the following information for the company selected by you and answer the questions given below:

Current Stock Price S₀ = 138.37

Exercise Price X =140

Time from Expiration T = 16/365= .0438

Risk-Free Rate = 1.5%

Compute Standard Deviation of Returns (Historical Volatility)= 0.73%

No dividends are expected. Answer the following questions:.

c. How do you construct a riskless hedge, and calculate the number of puts per 100 shares purchased? Explain (10 points)

d. What is the call's vega? Explain the meaning of your answer. (10 points)

e. If we now assume that the stock pays a dividend at a known constant rate of 2.0 percent, what stock price should we use in the model? (10 points)

f. If the interest rate goes up from 1.5% to 3.0% find the value of rho? What is the interpretation of rho? (5 points)