Question1. Laserclok Corporation paid the dividend for 50 years till it experienced financial difficulty three years ago, at which time the dividend payment was suspended (that is, a dividend hasn’t been paid throughout the past three years). The company is now much stronger financially, but Laserclok does not anticipate paying a dividend for the subsequently 5 years. Beginning six years from today, the company will pay a dividend equivalent to $2.10, which is 5 percent greater than the last dividend paid three years ago. After the dividend payments start again, Laserclok anticipates the dividend to continue to be paid and to grow at a stable rate of 5 percent. If the suitable market rate for investments similar to Laserclok's stock is 15 percent, at what price must the stock currently be selling in the financial markets?
Question2. The stock of a computer company is currently trading at market price of $60 per share. Throughout the upcoming two years the return on the computer company's stock will have a yearly standard deviation of 45%. The risk free rate of interest is 3% per year compounded constantly. An American call option on the company having strike price of $57.50 and 18 months to expiration has a hedge ratio of .6681. The risk adjusted probability that the 18 month $57.50 call option will finish in the money is .4535. Supposing the company is NOT expected to pay a DIVIDEND throughout the next two years, find out.
a. The value of an American Call Option on the company with 18 months to expiration and a $57.50 strike price.
b. The risk-adjusted probability which a European put option on Braeburn having 18 months to expiration and strike price of $57.50 will finish in money.
c. The value of an European put option on company having 18 months to expiration and strike price of $57.50.