(c) Construct risk-neutral probabilitiès för and verify the risk-neutral value for the call option is the same as the value given by the replicating portfolio.
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- 1 Consider the two investments listed below with possible outcomes and probabilities: INVESTMENT (in $1000) P SAFE RISKY INVESTMENT AMOUNT 40+ 40+ GOOD SCENARIO OUTCOME 45+ 80+ AVERAGE+ SCENARIO PROB+ OUTCOME 0.40+ 0.40 42+ 45 BAD+ SCENARIO PROB OUTCOME PROB 0.20 35+ 0.20 10 0.40€ 0.40 a) What are the expected payoffs (E(x)) and standard deviations for each investment? b) Suppose I have utility function U(*) = √(x). What is the expected utility from each investment? c) Which investment will I choose, if any? Show and explain your work and provide the intuition.< d) What is the value of the risk premium for the SAFE investment? Show and explain your work and provide the intuition. e) What is the value of the risk premium for the RISKY investment? Show and explain your work and provide the intuition.< 43 A ✔ →(ii) Jack, initially, has a wealth (W) equal to 2000 and will lose 1200 if his investment in a risky bond is unsuccessful and will gain 1200 if it is successful. The probability that the investment is successful is 0.75 and his utility function is given by U(W) = W^0.5. (a) Is this bond a fair bond? (b) What is Jack;s expected utility? (c) Suppose, there is a secured non-risky. gold bond. How much return should this gold bond offer, so that Jack chooses the gold bond instead of the risky bond.An investor is considering the following two investments.•Investment 1 has an expected rate of return (profit) of 8% and costs $40 per share.•Investment 2 has an expected rate of return (profit) of 5% and costs $30 per share.The investor has $100 to invest to maximize her total expected rate of return, and shemust buy whole shares (not partial/factional shares) of the investments.(a) Formulate the investor’s integer programming problem.(b) Solve the investor’s problem using branch and bound and explain youranswer. How much of each investment does the investor purchase?
- At expiration, if you have been diligently delta hedging,, the delta of an option will be: A. 100% if it's in the money and exercised or Zero if it expires out-of-the-money B. 100% if it expires out-of-the-money or zero if it's in the money and exercised C. It depends if you exercise it, sometimes even if an option is in the money at expiration you may chose not to exercise it because you did not cover the cost of your premium. D. You should not be delta hedging if you have a good idea of where ithe underlying is goingYou are financial analyst for the XYZ company. The director has asked you to analyze two proposed capital investments, Project A and Project B. Each project has a cost of RM 10, 000, and the cost of capital for each project is 12 percent. The project s’ cash flows are as follows: Year Expected Net Cash Flows Project A Project B 0 (10,000) (10,000) 1 6500 3500 2 3000 3500 3 3000 3500 4 1000 3500 Calculate each project’s NPV. Which project or projects should be accepted?The following are the P/E ratios (price of stock divided by projected earnings per share) for 20 banks. 50, 19, 22, 21, 25, 18, 31, 21, 19, 14, 15, 18, 17, 34, 29, 23, 14, 18, 22, 22 Send data to calculator Find 20" and 75" percentiles for these ratios. (a) The 20th percentile: (b) The 75th percentile:| Continue Cip 40 4- %23 %24 3. 6. 7. R. 00 %24
- An investor is considering two investments for his portfolio. Investment A requires an initial capital of $11,100. It will generate annual revenues of $3,900 and annual costs of $560 with a salvage value of $5,000 at the end of 5 years. On the other hand, Investment B requires an initial capital of $17,000, generates annual revenues of $8,000, annual costs of $1,100 with a salvage value of $9,200 at the end of 5 years If the investor's MARR is 18% per year, answer the following two questions: Calculate the conventional B/C ratio of Investment A OA. -0.86 OB. 0.64 OC. -0.36 OD. 1.14 Calculate the incremental conventional B/C ratio of Investment B over A. OA. 3.23 OB. 1.73 OC. 3.73 OD. 2.23Question 8 The January 2023 S&P 500 cash index is 3950 points while the S&P 500 futures March 2023 index is 4000 and the contract value of each index point is $150. You are convinced the futures market will fall 20% by expiry. You are only prepared to buy or sell one futures contract.Describe a decision your company has madewhen facing uncertainty. Compute the expectedcosts and benefits of the decision. Offer adviceon how to proceed. Compute the profit conse-quences of the advice.
- SHOW IN EXCEL SHOW EACH PROCESS IN EXCEL Gasoline EV Purchase Cost $50,000 $80,000 Annual - Maintenance $5,000 $2,500 Annual Fuel $7,500 $3,000 Service Life Probability Service Life Probability 55% 52% 6 10% 65% 7 25% 7 10% 8 35 % 8 25% 9 20% 9 50 % 10 5 % 10 8% a) (5 Points) What is the expected value of the present worth and expected value of the standard deviation of each option? b) (5 Points) Which option should be chosen, and why? c) (5 Points) If the company' s MARR is 20%, which option would they choose and why? d) (5 Points) What value of the MARR makes the company indifferent between choosing gasoline or electric vehicles?You are working as an investment consultant in a firm. You have been provided data for the past 7 years in the Table 4 as follows: Table 4: Investment Data Yr. Investment (Rs. Millions) Returns (Rs. Millions) 1 185 17 2 128 37 3 75 63 4 98 54 5 155 36 6 63 72 7 112 36 Assume your client plans to investment 30 million rupees. Based on this data will you recommend your client to invest. Why or why not? Your recommendations must be supported by complete workings including model(s), relationships between variables (correlations, coefficient of determinations) and graphical visualizations (such as scatter charts).An oil company is considering drilling in the Gulf at a current cost of $400,000 with an expected profit of $500,000 in three years. The current market rate of interest is 10 percent. Should the company make the investment? Multiple Choice No, the present value of the profit is less than the present value of the cost.. No, the future value of the profit is less than the present value of the cost. Yes, the present value of the profit is greater than the present value of the cost.. Yes, the future value of the profit is greater than the present value of the cost.