Suppose a stock has a current price $50 and will pay a dividend $2 at the end of second month. The volatility of the stock is 40%, and the interest rate is 5%. Use a four-period binomial tree to model the stock price dynamics in four months.
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- Consider the three stocks in the following table. Pt represents price at time t, Qt represents shares outstanding at time t. Stock C splits two for one in the second period from t=1 to t=2. Calculate the rate of return on a price-weighted index consisting of the three stocks for the first period from t=0 to t=1. Answer in percentage. Stock P0 Q0 P1 Q1 P2 Q2 A 70 475 75 475 75 475 B 45 850 40 850 40 850 C 50 300 60 300 30 600 a. 0.00% b. 2.49% c. 6.06% d. 8.95% e. 1.30%Suppose you allocate 2/5 of your portfolio value to a stock that has an expected return of 8% and the rest to another stock that has an expected return of 17%. What is the expected return on your two-stock portfolio? Note: Show your answer in units of percents, use plain numbers with at least two digits after the decimal (e.g., for 12.34%, type 12.34).Consider the three stocks in the following table. Pt represents price at time t, and Qt represents shares outstanding at time t. Stock C splits two for one in the last period. P0 Q0 P1 Q1 P2 Q2 A 100 625 105 625 105 625 B 65 650 60 650 60 650 C 70 150 90 150 45 300 a. Calculate the rate of return on a price-weighted index of the three stocks for the first period (t = 0 to t = 1). (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. Calculate the new divisor for the price-weighted index in year 2. (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. Calculate the rate of return for the second period (t = 1 to t = 2).
- You use the usual forward tree model for stocks to construct a binominal tree for modeling the price movements of the stock. You are given: i) The length of the period is 1 year ii) The initial stock price is 100 iii) The stock' s volatility is 30% iv) The stock pays dividends continuously at a rate proportional to its price. The dividend yield is 5% v) The continuously compounded risk-free interest rate is 5% Calculate the price of a two-year 100-strike American call option on the stock. Possible Answers A 11.40 B 12.09 C 12.78 D 13.47 E 14.16Assume that the risk-free rate is 7.5% and the market risk premium is 5%. What is the required return for the overall stock market? Round your answer to one decimal place.Consider the three stocks in the following table. Pt represents price at time t, Qt represents shares outstanding at time t. Stock C splits two for one in the second period from t=1 to t=2. Calculate the rate of return on a price-weighted index consisting of the three stocks for the first period from t=0 to t=1. Answer in percentage. Answer options: 0.00% 2.49% 6.06% 8.95% 1.30%
- Two stock prices for six days are given below. Price A Price B 25 55 27 59 30 64 28 62 26 58 32 61 1. Calculate the Standard Deviation of Stock A? 2. Calculate the Mean Return of Stock A? 3. Calculate the Coefficient of Variation (CV) of Stock A?A stock has a current price $100 and will pay a dividend $2 at the end of second month. The volatility of the stock is 30%, and the interest rate is 6%. Use a four-period binomial tree to model the stock price dynamics over the next four months by breaking up the stock into a riskless and a risky part. Display the adjusted stock price and the actual stock price trees.A stock has an expected return of 7.5%. Given a risk-free rate of 4.4% and a market return of 7%, what is the β of this stock? Enter your answer rounded to 2 DECIMAL PLACES.
- Consider the three stocks in the following table. Pt represents price at time t, and Qt represents shares outstanding at time t. Stock C splits two-for- one in the last period. P0 Q0 P1 Q1 P2 Q2 A 82 100 87 100 87 100 B 42 200 37 200 37 200 C 84 200 94 200 47 400 a. Calculate the rate of return on a price - weighted index of the three stocks for the first period (t = 0 tot = 1). b. What will be the divisor for the price - weighted index in year 2? c. Calculate the rate of return of the price - weighted index for the second period (t = 1 to t = 2). *note: Please explain why the reture rate for the second period is 0. Thanks!*A stock has a required return of 12%, the risk-free rate is 2.5%, and the market risk premium is 5%. a)What is the stock's beta? Round your answer to two decimal places.Consider the three stocks in the following table. P, represents price at time t, and Q, represents shares outstanding at time t. Stock C splits two-for-one in the last period. (LO 2-2) A B C Po 90 50 100 Qo 100 200 200 P₁ 95 45 110 Q₁ 100 200 200 P₂ 95 45 55 a. Calculate the rate of return on a price-weighted index of the three stocks for the first period (t = 0 to t = 1). b. What must happen to the divisor for the price-weighted index in year 2? c. Calculate the rate of return of the price-weighted index for the second period (t = 1 to t=2). Q₂ 100 200 400