Question

The risk neutral probability is equal to 0.6 and the risk free rate is 5%. Furthermore...

The risk neutral probability is equal to 0.6 and the risk free rate is 5%. Furthermore the present value of cash flows is equal to V = 100. If d = 1/u, then what is the value of V in the downstate in the next period?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

proper answer is provided.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Replicating portfolios. A stock sells for $50 today. The risk-free rate over the period is 10%...
Replicating portfolios. A stock sells for $50 today. The risk-free rate over the period is 10% with annual compounding. Assume that next period (in one year) the stock will either go up by 30% (to $65) with probability 0.7 or go down by 20% (to $40) with probability 0.3. Suppose you own an out-of-the-money European call option on the stock with a strike price X equal to the futures price for delivery in one year. In what follows, always use...
Let the present value from production be equal to V = 100, and this value can...
Let the present value from production be equal to V = 100, and this value can move either up (with factor u = 1.5) or down (with factor d = 1/u) per period. Suppose that at t=3 management has the option to invest 90 million in order to double the value of production. The risk free rate is 2%. What is the expanded present value of this production facility if management has the opportunity to expand at t = 3
Assume that the risk-free rate is 5%, the risk-adjusted discount rate is 10%, the expected cash...
Assume that the risk-free rate is 5%, the risk-adjusted discount rate is 10%, the expected cash flow for t = 1 is 495, and the expected cash flow for t = 2 is 508.2 a)Assume that the cash flow risk increases geometrically through time. Compute the present value of the cash flow stream using the certainty equivalent method. b) Assume that the cash flow risk remains constant through time. Compute the present value of the cash flow stream using the...
1. A free throw shooter has a probability of success equal to 0.6 a) Find the...
1. A free throw shooter has a probability of success equal to 0.6 a) Find the odds in favor of the free throw shooter succeeding on the next attempt. Show all steps. b) FInd the odds against the free throw shooter succeeding on the next attempt. Show all steps. 2. The odds in favor of a horse winning the next race is 9:3. a) Find the probability of the horse winning the next race. State yout answer as an exact...
Let the present value from production be equal to V = 100, and this value can...
Let the present value from production be equal to V = 100, and this value can move either up or down in the next period (t=1) to V = 150 and V = 67. Suppose that at t=1 management has the option to invest 90 million in order to double the value of production. The risk free rate is 2%. You only have to consider the given periods. What is the value of this option?
Let the present value from production be equal to V = 100, and this value can...
Let the present value from production be equal to V = 100, and this value can move either up or down in the next period (t=1) to V = 130 and V = 77. Suppose that at t=1 management has the option to invest 80 million in order to double the value of production. The risk free rate is 2%. You only have to consider the given periods. What is the value of this option? (consider the option to expand)
Which of the following is not true? Select one: a. If the risk free rate is...
Which of the following is not true? Select one: a. If the risk free rate is 2% and the market risk premium is 6%, then the expected return is 14% for a security with a beta of 2. b. If a project’s cash flows are uncertain then the present value discount rate should be higher than the risk free rate. c. The beta of a capital budgeting project should be appropriate to its risk. d. All of THESE are true
Consider a single period binomial setting where the risk-free interest rate is zero, and there are...
Consider a single period binomial setting where the risk-free interest rate is zero, and there are no taxes. A firm consists of a machine that will produce cash flows of $200 if the economy is good and $87 if the economy is bad. The good and bad states occur with equal probability. Initially, the firm has 100 shares. Assume that outstanding debt with a face value of $80 is due at the end of the period. Suppose the firm unexpectedly...
Company Y has common stock beta 1.4. Risk free rate is 5% and market risk premium...
Company Y has common stock beta 1.4. Risk free rate is 5% and market risk premium is 8%. Company Y cost of debt is 5,4%. Company tax rate is 35%. Debt to equity ratio is 0.6. Calculate E/V ratio. Express your answer as %.
There are 5 million ordinary shares. The beta of the shares is 0.6, the risk-free rate...
There are 5 million ordinary shares. The beta of the shares is 0.6, the risk-free rate is 2% pa and the return on the market is 10% pa. The shares last traded at $10.00 per share. An overdraft of $15 million attracts an interest rate of 6% pa compounded monthly. Bonds exist with a total face value of $30m, a market value of $30m, a coupon of 5% pa paid semi-annually and 10 years to maturity. The company accounts show...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT