Discussion 1: Financial Options and Applications and Weighted Average Cost of Capital
A. What are several ways to use stocks and options to create a risk-free hedged portfolio? Support your answer by providing examples of specific stocks and options that are used to create the portfolio (i.e., what specific instruments are used)?
Obtaining Information About Specific Options
The Discussion 1 this week requires using specific stocks and specific options to create hedged portfolios. This information may help you to obtain the necessary information:
The CBOE (Chicago Board Options Exchange) is a convenient source of information about stock options. It is very easy to obtain the “option chain” (listing of all options on a particular stock) by entering the “Ticker Symbol” of the underlying stock.
The information about options can be obtained at:
com/delayedquote/quotetable.aspx”>http://www.cboe.com/delayedquote/quotetable.aspx
B. From the scenario, create an estimate of TFC’s weighted average cost of capital (WACC) and its required rate of return? Should the company expand or not expand; how do you defend your position including specific information from TFC’s financial statements?
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