In this problem, a single period CRR model with S0 =$100, S1 =$200 or $50, and r =0.25.
a. Find the arbitrage free initial price of a European call option for one share of stock where the strike price K =$100 and the exercise time T = 1.
b. Find the hedging strategy that replicates the value of the option described in (a).
c. Suppose that the option is initially priced at $1 above the arbitrage free price. Describe a trading strategy that is an arbitrage opportunity.
d. What its he arbitrage-free initial price for a put option with the same strike price

73. calculate the weighted average cost of capital (wacc) based on the following information: the equity multiplier is 1.66; the interest rate on debt is 13%; the required return to equity holders is 22%; and the tax rate is 35%. (a) 15.6% (b) 16.0% (c) 15.0% (d) 16.6% (e) none of the above

On january 1, vermont corporation had 40,000 shares of $10 par value common stock issued and outstanding. all 40,000 shares has been issued in a prior period at $20.00 per share. on february 1, vermont purchased 3,750 shares of treasury stock for $24 per share and later sold the treasury shares for $21 per share on march 1. the journal entry to record the purchase of the treasury shares on february 1 would include a credit to treasury stock for $90,000 debit to treasury stock for $90,000 credit to a gain account for $112,500 debit to a loss account for $112,500

Choose the statement that is incorrect. a. search activity occurs only in markets where there is a shortage. b. when a price is regulated and there is a shortage, search activity increases. c. the time spent looking for someone with whom to do business is called search activity. d. the opportunity cost of a good is equal to its price plus the value of the search time spent finding the good.