Finance And Operations Management

1CM22, Spring 2011 WEEK 12 M. Reindorp The four questions below grow be used to improve your final grade for 1CM22, as expound in the grading section of the study guide. In general, delight pose calculations for your answers. Some questions describe further precise requirements. You can work in groups (maximum four students each). disport show the find and student ID of all group members on the premier 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 linage X with due date in 1 course of instruction and current scathe €10. A European call picking on fall X with maturity in one year has current terms €15. both options have extract harm €40. The damage of stock X itself is €50, and the legal injury of a ( lay on the line free) discount bond (zero voucher bond) paying(a) €1 in one year is €0.9 0. How can you quality a encounter free profit? (b) An American present option on stock Y with accomplishment cost €50 has a time to maturity of one year. The price of stock Y is €0.10. The risk free interest prescribe is 5%. Show that it is optimal to exercise this option early. (c) Your familiar 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 acquires the stock after today will not be entitled to re! ceive 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 thinkable that the stock price will be over €55 when his call option expires. Explain to your colleague (using a mathematical argument) why he should not exercise the option. 2. The stock of the telephoner MENIAC computers...If you want to get a full essay, order it on our website: OrderCustomPaper.com

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