Finance And Operations Management

1CM22, Spring 2011 WEEK 12 M. Reindorp The four questions below set up be used to improve your final grade for 1CM22, as expound in the grading section of the study guide. In general, delight guide calculations for your answers. Some questions describe further specific requirements. You can work in groups (maximum four students each). amuse show the find and student ID of all group members on the maiden rapscallion of your answers. This assignment is due by 12.00 (midday) on 18-05-2011. Please stash away your answers in Paviljoen F0.16. 1. (a) Suppose there is a European instal together pick on filiation X with due date in cardinal course of instruction and current scathe €10. A European call natural selection on persuade X with maturity in one year has current terms €15. both excerptions have entrust harm €40. The harm of stock X itself is €50, and the determine of a ( lay on the line free) discount bond (zero coupon bond) paying(a) € 1 in one year is €0.90. How can you make a try free profit? (b) An American cat option on stock Y with process equipment casualty €50 has a time to maturity of one year. The price of stock Y is €0.10. The risk free interest govern is 5%. Show that it is optimal to exercise this option early. (c) Your curse has an American call option on the stock of Akzo Nobel. The option has an exercise price of €55 and expires in 6 months.

The annualized six-month risk free interest rate is 10%. Currently, the price of Akzo Nobel stock is greater than €55, but it will go ex dividend tomorrow (i.e., anyone who ac quires the stock after today will not be ent! itled to receive the dividend). The dividend will be €2. Your colleague wonders whether to exercise the option. He is worried, because he recalls from his undergraduate finance studies that the stock price of Akzo Nobel should drop tomorrow by €2, making it less achievable that the stock price will be over €55 when his call option expires. Explain to your colleague (using a numeral argument) why he should not exercise the option. 2. The stock of the connection MENIAC computers...If you want to get a full essay, order it on our website: OrderCustomPaper.com

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