1) In a one-period binomial model, assume that the current stock price is $100, and that it will rise to $130 or fall to $70 after one month. The gross one month risk - free rate is 1.02 %. Using risk neutral pricing, what is the price of a 100- strike one-month call option? Round your calculaton for q and 1 - q to four (4) decimal places. a. $14.90 b. $14.71 c. $15.05 d. $15.69 2) In a one-period binomial model, assume that the current stock price is $100, and that it will rise to $120 or fall to $80 after one month. The gross one month risk - free rate is 1.03%. Using risk neutral pricing, what is the price of a 100-strike one-month put option? Round your calculaton for q and 1 - q to three (3) decimal places a. $8.00 b. $8.25 c. $8.50 d. $8.75

1) In a one-period binomial model, assume that the current stock price is $100, and that it will rise to $130 or fall to $70 after one month. The gross one month risk - free rate is 1.02 %. Using risk neutral pricing, what is the price of a 100- strike one-month call option? Round your calculaton for q and 1 - q to four (4) decimal places. a. $14.90 b. $14.71 c. $15.05 d. $15.69 2) In a one-period binomial model, assume that the current stock price is $100, and that it will rise to $120 or fall to $80 after one month. The gross one month risk - free rate is 1.03%. Using risk neutral pricing, what is the price of a 100-strike one-month put option? Round your calculaton for q and 1 - q to three (3) decimal places a. $8.00 b. $8.25 c. $8.50 d. $8.75

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Consider an American Put option with time to expiry of 5 months and a strike price of 82. The current price of the underlying stock is 80. Divide the time to expiry into five 1-month intervals. In each interval, the stock price can either rise by 6, or fall by 6, with unknown probability. The risk-free rate is 4.2% per annum, continuously compounded. Use Binomial Model. What is the value of the option. Please provide necessary calculations.
If the interest rate on T Bills is 2% and the market risk premium is 6%, what is the CAPM-implied expected return on a stock with a beta of 1.25? Enter your answer as a percentage rounded to 2 decimal places.
Ringling Cycle’s stock price is now $20. You need to find the valueof a call option with a strike price of $22 that expires in 2 months.You want to use the binomial model with 2 periods (each period isa month). Your assistant has calculated that u = 1.1553, d = 0.8656,pu = 0.4838, and pd = 0.5095. Draw the binomial lattice for stockprices. What are the possible stock prices after 1 month? ($23.11or $17.31) After 2 months? ($26.69, $20, or $14.99) What are theoption’s possible payoffs at expiration? ($4.69, $0, or $0) Whatwill the option’s value be in 1 month if the stock goes up? ($2.27)What will the option’s value be in 1 month if the stock price goesdown? ($0) If each month is 1/12 of a year, what is the currentvalue of the option? ($1.10)
Assume a stock price of $30.25, risk-free rate of 1 percent, standard deviation of 40 percent, N(d1) value of 0.7976, and an N(d2) value of 0.7089. What is the value of a six-month put with a strike price of $25 given the Black-Scholes option pricing model (rounded to the nearest cent)? $6.49 $0.83 $2.43 $1.12 None of the above are correct.
You want to price an American Put option that is written on the stock of Shelby Ltd. The price of the stock is £20, the risk-free interest rate is 5%, the annualised volatility of the stock is 42% and the option expires in 5 months. Given that information, calculate the up-multiplier to be used in a nine-step binomial tree. Write your answer in decimal form with up to three decimal points Answer:
Consider a stock worth K12.50 that can go up or down by 15% per period. Assume aperiod process of one. The risk-free rate is 10%. Find the value of the call optiontoday, with the strike price of K11.50.
A call option is currently selling for $5.00. It has a strike price of $85 and ten months to maturity. A put option with the same strike price sells for $8.10. The risk-free rate is 4.6 percent and the stock will pay a dividend of $2.60 in three months. What is the current stock price? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
A call option currently sells for $7.00. It has a strike price of $40 and five months to maturity. A put with the same strike and expiration date sells for $5.00. If the risk-free interest rate is 5 percent, what is the current stock price? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Current stock price
1.
Suppose that a stock price is currently 56 dollars, and it is known that five months from now, the price will be either 22 percent higher or 22 percent lower. Find the value of a European put option on the stock that expires five months from now, and has a strike price of 55 dollars. Assume that no arbitrage opportunities exist, and a risk-free interest rate of 6 percent.
D4) Finance Calculate the price of a 3-month American put option on a non-dividend-paying stock when the stock price is $50, the strike price is $50, the risk-free interest rate is 5% per annum, and the volatility is 25% per annum. Use a binomial tree with a time interval of 1 month.
Consider a call option on one share of BP with a strike price of $70 and exercise time 1 quarter (3 months). Suppose the current stock price for BP is S(0) = $65 per share. Suppose further that A(0) = $100, A(1) = $102 and two possible prices for S(1) are S $74 with probability 0.5, S(1) = $66 with probability 0.5. Evaluate the expected returns E(Ks) and E(Kc) for the stock and the option.

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