(Q8-4)The current price of a stock is $33 and the annual risk-free rate is 6%. A call option with a strikeprice of $32 and with 1 year until expiration has a current value of $6.56. What is the value of a put optionwritten on the stock with the same exercise price and expiration date as the call option?(Q8-6)The current price of a stock is $20. In 1 year the price will be either $26 or $16. The annual risk-freerate is 5%. Find the price of a call option on the stock that has a strike price of $21 and that expiresin 1 year. (Hint: Use daily compounding)(Q26-1)Kim Hotels is interested in developing a new hotel in Seoul. The company estimates that the hotel would require an initial investment of $20 million. Kim expects the hotel will produce positive cash flow of $3 million a year at the end of each of the next 20 years. The project cost of capital is 13%.(A) What is the project’s net present value?(B) Kim expects the cash flows to be $3 million a year but it recognizes that the cashflows could actually be much higher or lower depending on whether the Koreangovernment imposes a large hotel tax. One year from now Kim will know whetherThere is a 50% change that the tax will be imposed in which case the yearly cashflows will be only $2.2 million. At the same time there is a 50% chance that thetax will not be imposed in which case the yearly cash flows will be $3.8 million.Kim is deciding whether to proceed with the hotel today or to wait a year to findout whether the tax will be imposed. If Kim waits a year the initial investmentwill remain at $20 million. Assume that all cash flows are discounted at 13%. Usedecision-tree analysis to determine whether Kim should proceed with the projecttoday or wait a year before deciding.
