What do we mean by discounted cash flow, or DCF, valuation?

In addition to the underlying asset, what is the major difference between an ordinary stock option and a stock index option?

When the price of the underlying stock either increases or decreases, how do call option prices and put option prices respond?

A call option expires in one year and has a strike price of K=$105. The current stock price is S0=$100S_0 = \$100.  The one-year risk-free interest rate is r=10%. It is known that in one year the stock price will be either S1=$120S_1 = \$120, or S1=$110S_1 = \$110. Using this information, determine the value today of the call option.

A stock option follows a one-period binomial model.  The stock price today is S0=$95S_0 = \$95. In one period, the stock will either increase by a factor of u=1.10u = 1.10 or decrease by a factor of d=0.95d = 0.95. The call option has:Strike price: K=$100K = \$100Risk-free rate: r=3%r = 3\% per periodTime to expiration: 1 periodUsing the one-period binomial option pricing model, compute the delta of the call option.

A stock option follows a one-period binomial model.  The stock price today is S0=$95S_0 = \$95. In one period, the stock will either increase by a factor of u=1.10u = 1.10 or decrease by a factor of d=0.95d = 0.95. The call option has:Strike price: K=$100K = \$100Risk-free rate: r=3%r = 3\% per periodTime to expiration: 1 periodUsing the one-period binomial option pricing model, compute the delta of the call option.

You calculate a delta of 0.8 for a call option.  How many shares and how many calls are needed to form a risk-free portfolio?  What positions (long or short) does the investor have in the shares and in the calls?

A stock index currently trades at a spot price of $350. A futures contract on this index expires in 3 months. The annual risk-free interest rate is 4%, and the index pays no dividends.  Using spot–futures parity, compute the theoretical futures price.

When are systematic risk (measured by beta) and total risk (measured by standard deviation) essentially the same?

Computea) the Sharpe ratio for Portfolio C,b) the Treynor ratio for Portfolio B, andc) the Jensen’s alpha for Portfolio Abased on the following data, where M and F represent the market portfolio and risk-free rate, respectively:PortfolioRP (%)σP (%)βPA12250.80B18201.10C24501.60M15151.00F600.00