1. Assuming a one -year holding period and supposing that ABC stock has an expected dividend per share, E(D1) , of $4; that the current price of a share, P0 , is $48; and that the expected price at the end of a year, E(P1), is $52. Calculate holding period return. What is dividend yield gain, and what is capital gain yield?
2. High Flyer Industries has just paid its annual dividend of $3 per share. The dividend is expected to grow at a constant rate of 8% indefinitely. The beta of High Flyer stock is 1, the risk -free rate is 6%, and the market risk premium is 8%. What is the intrinsic value of the stock? What would be your estimate of intrinsic value if you belie ved that the stock was riskier, with a beta of 1.25?
3. Takeover Target is run by entrenched management that insists on reinvesting 60% of its earnings in projects that provide an ROE of 10%, despite the fact that the firm's capitalization rate is k = 15%. The firm's year - end dividend will be $2 per share, paid out of earnings of $5 per share. At what price will the stock sell? What is the present value of growth opportunities? Why would such a firm be a takeover target for another firm?
4. Turn back to Figure 15.1, which lists the prices of various Facebook options. Use the data in the figure to calculate the payoff and the profits for investments in each of the following November 2014 expiration options, assuming that the stock price on the expiration date is $78. 20 a. Call Option, X =75. b. Put Option, X =75. c. Call Option, X =80. d. Put Option, X =80.
5. You purchase one Facebook October $80 put contract for a premium of $5.72. What is your maximum possible profit?
6. An investor buys a call at a price of $4.50 with an exercise price of $40. At what stock price will the investor break even on the purchase of the call?
7. Use the Black -Scholes formula to find the value of a call option on the following stock: 20 Time to expiration = 6 months Standard deviation = 50% per year Exercise price = $50 Stock price = $50 , Interest rate = 3%, Dividend = 0
8. Find the Black -Scholes value of a put option on the stock in the previous problem with the same exercise price and expiration as the call option.