Please correct answer and don't used hand raiting and don't used Ai solution 1.Calculate the call price given the following parameters. The stock price is now $30. The stockhas an annualized volatility of 40%. The risk-free rate is 10%. The option has an exercise priceof $35 and will expire in 3 months. show all work2. A stock is currently trading at $40. In one year, the stock will either be $55 or $30. The riskfree rate is 8% per year. What's the price of a put option with a strike of 40? Show all work

1. BLACK-SCHOLES OPTION PRICING MODELThe Black-Scholes model is based on several key assumptions:-…

Answered: 1.Calculate the call price given the…

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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A put option will mature in six months. The standard deviation of the underlying stock returns is 50% per year. The exercise price of the put option is $50 and the stock price is also $50. The risk-free interest rate is 3% per year. Using the Black- Scholes formula, what is the price of the put option? Show detailed work leading to your answer in the working sheet. $6.34 $7.08 $8.07 $3.64
Suppose that a Stock has a current price of $40 and that in 6-months it may go up by 20% or down by 15%. Assuming the annual risk-free rate is 3%, compounded semi-annually, answer the following: a) Calculate the value of a $35 Call with two 6-month periods (i.e. 12-months) to expiry using the Risk Neutral Approach. b) Calculate the value of a $35 Put using Put-Call Parity. c) Without performing any calculations, explain in 1-2 sentences what you would expect to happen to the value of the Call and Put if the Exercise Price decreased. d) Do this question in the blank space below - i.e. DO NOT answer this sub-part (d) in Excel. Only your solution written below will be marked: Suppose the market price of a 12-month Call with an exercise price of $35 is $6.00. The Put price is as you calculated in (b) above. Using a payoff table, illustrate an arbitrage opportunity as a result of the mispricing of the Call. Show your workings to 3 decimal places. (If you need more space, please use the back…
Consider a European call option on a stock with current price $100 and volatility 25%. The stock pays a $1 dividend in 1 month. Assume that the strike price is $100 and the time to expiration is 3 months. The risk free rate is 5%. Calculate the price of the the call option.
The price of a stock is currently $37. Over the next half year, the price is anticipated to rise to $42 or decline to $36. The upside has a 60% probability of occurring. The risk-free interest rate is 5% p.a.. What is the price of a six month call option with an exercise price of $38?
Consider the three calls from the previous problem expiring in T = 1 year. Suppose that the premium of the three options are $7, $3, $1 for A, B, and C, respectively, today (time 0). Suppose the price on the stock today is $14. Suppose the risk-free rate is constant at 5%. Graph the profit function for the butterfly strategy at time T taking into consideration the time value of the initial cost. By how much would the asset have to change over the year for your butterfly portfolio to be a loss?
Consider a stock currently priced at $40. Assume that in each period of one month, the stock could either appreciate or depreciate by 10% . The risk - free rate is 2% per annum. What would be the value of a 2 - month ATM Asian put?
Current stock price of XYZ is $1,000. The market expects the price will be $1,700 in 3 years. What should be the return over the next two years if return is continuously compounded?
Suppose Carol's stock price is currently $20. If the standard deviation of the continuously compounded returns (σ) on a stock is 60 percent per year. The annual risk-free rate is 12%, compounded every 6 months. A. Using one-step binomial tree, what is the current value of a six-month call option with an exercise price of $25?B. Using two-step binomial tree, what is the current value of a one-year put option with an exercise price of $25?
Consider a stock currently priced at $60. Assume that in each period of one month, the stock could either appreciate or depreciate by 10%. The risk free rate is 2% per period. What would be the value of a 3-month 60 European call if a dividend of $1 would be paid and the ex - dividend date is at the end of the second period? Justify your answer.
The current price of a stock is $21. In 1 year, the price will be either $26 or $16. The annual risk-free rate is 5%. Find the price of a call option on the stock that has a strike price of $22 and that expires in 1 year. (Hint: Use daily compounding.) Assume a 365-day year. Do not round intermediate calculations. Round your answer to the nearest cent.
A stock has a current price of $67. An option on this stock that expires in six months has an exercise price of $65. The stock will pay a dividend of $5 in three months. Assume an annualized volatility of 30% and a continuously compounded risk - free rate of 5% per annum. Use the Black - Sholes - Merton model to price this option. 1) Suppose the option is a European put. Calculate the value of the put. 2) Suppose this option is an American call. Use Black's approximation to calculate the value of this call.
A stock price is currently $10. Over each of the next two three - month periods it is expected to go up by 10 percent or down by 10 percent. The risk - free interest rate is 6.184 percent per annum,the interest rate is a simple interest rate(use continuous compounding to get proper rf). The strike price is $10. Calculate the call option price and the put option price.

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