MGFC30H3 Lecture Notes - Lecture 8: Straddle, Longan
Get access
Related Questions
Use the Excel Template and the table of prices and dividendsbelow to answer the next seven questions:
Kellogg Ticker = K | S&P 500 | ||
Month | Dividend | Price | Price |
Jan-17 | 72.71 | 2278.87 | |
Feb-17 | 74.07 | 2363.64 | |
Mar-17 | 0.52 | 72.61 | 2362.72 |
Apr-17 | 71 | 2384.2 | |
May-17 | 0.52 | 71.6 | 2411.8 |
Jun-17 | 69.46 | 2423.41 | |
Jul-17 | 68 | 2470.3 | |
Aug-17 | 0.54 | 65.46 | 2471.65 |
Sep-17 | 62.37 | 2519.36 | |
Oct-17 | 62.53 | 2575.26 | |
Nov-17 | 0.54 | 66.16 | 2584.84 |
Dec-17 | 67.98 | 2673.61 | |
Jan-18 | 68.11 | 2823.81 | |
Feb-18 | 66.2 | 2713.83 | |
Mar-18 | 0.54 | 65.01 | 2640.87 |
Apr-18 | 58.9 | 2648.05 | |
May-18 | 0.54 | 64.39 | 2705.27 |
Jun-18 | 69.87 | 2718.37 | |
Jul-18 | 71.03 | 2816.29 | |
Aug-18 | 0.56 | 71.79 | 2901.52 |
Sep-18 | 70.02 | 2913.98 | |
Oct-18 | 65.48 | 2711.74 | |
Nov-18 | 0.56 | 63.65 | 2760.17 |
Dec-18 | 59.23 | 2545.94 |
1. (EXCEL TEMPLATE)Calculate monthly returns for Kellogg (K) and the S&P 500. Besure to include the dividends for Kellogg in the return.
2. (EXCEL TEMPLATE)Calculate the average, standard deviation, and variance of returnsfor Kellogg (K) and the S&P 500.
3. (EXCEL TEMPLATE)Use the covariance equation to find the covariancebetween Kellogg (K) and the S&P 500.
4. (EXCEL TEMPLATE)Use the correlation coefficient equation to findthe correlation coefficient between Kellogg (K and the S&P500.
5. (EXCEL TEMPLATE) Use the betaequation to find the beta of Kellogg (KY).
6. (EXCEL TEMPLATE)Use Regression Analysis to find the beta for Kellogg (you shouldget the same answer as in question 5).
7. (EXCELTEMPLATE)
a. Whatis the probability that the true beta for Kellogg is equal tozero?
b. If the market risk premium is 6%and the risk-free rate is 3%, what return would you expect to earnon Kellogg given YOUR beta calculation?
c. Go to the website for Yahoo Financeand to the Profile tab. List two products the company makes.
d. Go to the website for Yahoo Financeand to the Summary tab. What beta is listed?
e. Give a possible reason for why yourcalculated beta is different than the Yahoo beta.
Consider a stock currently worth $80 (S = 80) that can go up or down by 25 percent per period. The exercise price is $80 (X = $80) and the risk-free rate is 5 percent (r = .05). The option will expire at the end of the third period (t = 3). You try to find a theoretically fair value of the put option using a three-period binomial option pricing model. Answer the following questions.
t = 0 | t = 1 | t = 2 | ||
Suu = (c) | ||||
Su = (a) | ||||
S = $80 | Sud = (d) | |||
Sd = (b) | ||||
Sdd = (e) | ||||
Puu = (f) | ||||
Pu = (i) | ||||
P = (k) | Pud = (g) | |||
Pd = (j) | ||||
Pdd = (h) | ||||
a) What are three possible stock prices at time t = 2 (c, d, and e)?
b) Compute three values at time t = 2 of European put options. (Puu, Pud, and Pdd)
c) Compute two values at time t = 1 of a European put options (Pu and Pd).
d) Find the theoretical fair value of the put option today (P).
e) Compute the riskless hedge ratio (h).
f) Construct a riskless hedge position with stocks and 1,000 put options at the theoretically fair value using the riskless hedge ratio (h).