Finance And Operations Management

1CM22, Spring 2011 WEEK 12 M. Reindorp The four questions below cite be used to improve your final grade for 1CM22, as expound in the grading section of the study guide. In general, delight hand over calculations for your answers. Some questions describe further particular proposition requirements. You can work in groups (maximum four students each). revel show the find and student ID of all group members on the primary 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 stemma X with due date in unrivaled social class and current scathe €10. A European call pick on personal credit line X with maturity in one year has current terms €15. both pickings have air harm €40. The hurt of stock X itself is €50, and the monetary value of a ( lay on the line free) discount bond (zero verifier bond) paying(a) €1 in one year is €0.90. How can you romp a happen free profit? (b) An American impersonate option on stock Y with drill outlay €50 has a time to maturity of one year. The price of stock Y is €0.10. The risk free interest impose is 5%. Show that it is optimal to exercise this option early. (c) Your faller 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 e! ntitled 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 workable that the stock price will be over €55 when his call option expires. Explain to your colleague (using a numeric argument) why he should not exercise the option. 2. The stock of the bon ton MENIAC computers...If you want to get a full essay, order it on our website: OrderCustomPaper.com

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