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1. A nondividend-paying stock is currently priced at $76. 2. In one year, there will only be two possible values for the stock's price. 3. The up factor per period if the stock price increases is u = 1.4. 4. The down factor per period if the stock price decreases is d = 0.7. 5. The continuously compounded risk-free interest rate is 6%. A 1-year 75-strike European put option is priced using a one-period binomial tree. Calculate the number of shares of stock that must be purchased to replicate the put option.

1. A nondividend-paying stock is currently priced at $76. 2. In one year, there will only be two possible values for the stock's price. 3. The up factor per period if the stock price increases is u = 1.4. 4. The down factor per period if the stock price decreases is d = 0.7. 5. The continuously compounded risk-free interest rate is 6%. A 1-year 75-strike European put option is priced using a one-period binomial tree. Calculate the number of shares of stock that must be purchased to replicate the put option.

Essentials Of Investments
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
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1. A nondividend-paying stock is currently priced at $76. 2. In one year, there will only be two possible values for the stock's price. 3. The up factor per period if the stock price increases is u = 1.4. 4. The down factor per period if the stock price decreases is d = 0.7. 5. The continuously compounded risk-free interest rate is 6%. A 1-year 75- strike European put option is priced using a one-period binomial tree. Calculate the number of shares of stock that must be purchased to replicate the put option.
Transcribed Image Text:1. A nondividend-paying stock is currently priced at $76. 2. In one year, there will only be two possible values for the stock's price. 3. The up factor per period if the stock price increases is u = 1.4. 4. The down factor per period if the stock price decreases is d = 0.7. 5. The continuously compounded risk-free interest rate is 6%. A 1-year 75- strike European put option is priced using a one-period binomial tree. Calculate the number of shares of stock that must be purchased to replicate the put option.
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