Consider the 1-period binomial model with a bond with A(0) = 60 and A(1) = 70 and a stock with S(0) = 4X and S^u(1) 6Y and S^d(1) = 3Z. = 1. What is the price (payoff) C(1) of a call option with strike price 28? 2. same... with strike price 45? 3. same... with strike price 72? 4. Set up a system of linear equations to determine a replicating portfolio for the call option from part 2 (strike price 45). 5. Solve it and determine the price C(O). 6. Compute, tabulate, and plot the price C(O) as you vary the strike price of the option from 28, 29, ..., 71, 72.

A. An option is trading at $5.03. If it has a delta of -.56, what would the price of the option be if the underlying increases by $.75? What would the price of the option be if the underlying decreases by $.55? B. What type of option is this and how? C. With a delta of -.56, is this option ITM, ATM or OTM and how?

2. Derive the single - period binomial model for a put option. Include a single - period example where: u = 1.10, d = 0.95, Rf = 0.05, SO = $100, X = $100. 3. Assume ABC stock's price follows a binomial process, is trading at SO = $100, has u 1.10, d = 0.95, and probability of its price increasing in one period is 0.5 (q = 0.5). a. Show with a binomial tree ABC's possible stock prices, logarithmic returns, and probabilities after one period and two periods. . b. What are the stock's expected logarithmic return and variance for 2 periods and 3 periods? c. Define the properties of a binomial distribution.

An option is trading at $3.45. If it has a delta of .78, what would the price of the option be if the underlying increases by $.75? A. What would the price of the option be if the underlying decreases by $.55? B. What makes this a call option? C. With a delta of .78, is this option ITM, ATM or OTM and how?

Assume that security returns are generated by the single-index model,  Ri = alphai + BetaiRM + ei where Ri is the excess return for security i and RM is the market's excess return. The risk-free rate is 2%. Suppose also that there are three securities A, B, and C, characterized by the following data.  Security Betai E(Ri) sigma(ei) A 1.4 15% 28% B 1.6 17% 14% C 1.8 19% 23% a. If simaM = 24%, calculate the variance of returns of securities A, B, and C (round to whole number).    Variance Security A   Security B   Security C   b. Now assume that there are an infinite number of assets with return characteristics identical to those of A, B, and C, respectively. What will be the mean and variance of excess returns for securities A, B, and C (enter the variance answers as a whole number decimal and the mean as a whole number percentage)?   Mean Variance Security A ?%   Security B ?%   Security C ?%

A call option with X = $55 on a stock priced at S = $60 is sells for $12. Using a volatility estimate of σ = 0.35, you find that N(d1) = 0.7163 and N(d2) = 0.6543. The risk-free interest rate is zero. Is the implied volatility based on the option price more or less than 0.35?

Assume that security returns are generated by the single-index model,Ri = αi + βiRM + eiwhere Ri is the excess return for security i and RM is the market’s excess return. The risk-free rate is 2%. Suppose also that there are three securities A, B, and C, characterized by the following data:  Security βi E(Ri) σ(ei) A 0.7 7 % 20 % B 0.9 9   6   C 1.1 11   15     a. If σM = 16%, calculate the variance of returns of securities A, B, and C.   b. Now assume that there are an infinite number of assets with return characteristics identical to those of A, B, and C, respectively. What will be the mean and variance of excess returns for securities A, B, and C? (Enter the variance answers as a percent squared and mean as a percentage. Do not round intermediate calculations. Round your answers to the nearest whole number.)

Assume that security returns are generated by the single-index model,   Ri = αi + βiRM + ei where Ri is the excess return for security i and RM is the market’s excess return. The risk-free rate is 3%. Suppose also that there are three securities A, B, and C, characterized by the following data:   Security βi E(Ri) σ(ei) A 1.4 14 % 23 % B 1.6 16   14   C 1.8 18   17       a. If σM = 22%, calculate the variance of returns of securities A, B, and C.   b. Now assume that there are an infinite number of assets with return characteristics identical to those of A, B, and C, respectively. What will be the mean and variance of excess returns for securities A, B, and C? (Enter the variance answers as a percent squared and mean as a percentage. Do not round intermediate calculations. Round your answers to the nearest whole number.)

Data: So=102; X = 115; 1 + r=1.1. The two possibilities for ST are 146 and 84. Required: a. The range of S is 62 while that of P is 31 across the two states. What is the hedge ratio of the put? b. Form a portfolio of one share of stock and two puts. What is the (nonrandom) payoff to this portfolio? c. What is the present value of the portfolio? d. Given that the stock currently is selling at 102, calculate the put value. × Answer is not complete. Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D What is the present value of the portfolio? Note: Round your answer to 2 decimal places. Present value $ 146.00 x

Consider the following data for two risk factors (1 and 2) and two securities (J and L):λ0 = 0.07 λ1 = 0.04 λ2 = 0.06bJ1 = 0.10 bJ2 = 1.60 bL1 = 1.80 bL2 = 2.45a. Compute the expected returns for both securities. b. Suppose that Security J is currently priced at $50 while the price of Security L is $15.00.Further, it is expected that both securities will pay a dividend of $0.95 during the coming year.What is the expected price of each security one year from now? c. Compute the correlation between stock A and stock B considering the following data.Standard deviation of stock A = 10 percentStandard deviation of stock B = 17 percentCovariance between the two stocks = 90.