26. The current stock price is $55, and its volatility is 40%. What is the price of a European put option with a strike price of $60 and time to maturity of 1 year. The risk-free interest rate is 7% I continuously compounded. Use the Black-Scholes-Merton model. Do this by hand and not the spreadsheet except for looking up N(d.) and N(d2) using the N(d₁) =normsdist(d1) formula.. A. $9.27 B. $9.68 C. $10.11 D. $10.89 E $11.23

26. The current stock price is $55, and its volatility is 40%. What is the price of a European put option with a strike price of $60 and time to maturity of 1 year. The risk-free interest rate is 7% I continuously compounded. Use the Black-Scholes-Merton model. Do this by hand and not the spreadsheet except for looking up N(d.) and N(d2) using the N(d₁) =normsdist(d1) formula.. A. $9.27 B. $9.68 C. $10.11 D. $10.89 E $11.23

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 4P: An analyst has modeled the stock of a company using the Fama-French three-factor model. The market...

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D4) Consider a two-step binomial tree. What is the delta of the put option if: the futures price is S = 1682.00, the risk-free rate is r = 2.90%, the strike price is K = 1757.00, the maturity is T = 12 months and the tree parameters are u = 1.1357 and d = 0.8620? (keep 4 decimals in your calculations).
4. Consider a stock with a current price of S0 = $60. The value of the stock at time t = 1 can take one of two values: S1,u = $100, S1,d = $40. The price of a risk-free bond that pays out $1 in period t = 1 is $0.90. (a) Using a one-step binomial tree, write down the possible payoffs of a put option on stock S with strike K = $60 and maturity t = 1. (b) What is the price of this put option? (c) What is the price of a call option with strike K = $60 and maturity t = 1? Please use put-call parity to find the call price.
D3) Finance What is the probability that the put option is OTM at maturity if: the Stock is S = $195.00, no dividend is paid, the risk-free rate is r = 2.40%, the strike price is K = 209.00, the maturity is T = 23 months and the parameters are d1 = 0.2328 and d2 = -0.3175?
Use the Black Scholes formulas and Excel (to avoid rounding errors in the final answers) to answer this question. Consider an option on a non-dividend-paying stock when the stock price is $44, the exercise price is $40, the risk-free interest rate is 6%, the volatility is 28% per annum, and the time to maturity is 4 months. (a) Find N(d1), enter answer to 3 decimal places. (b) Find N(d2),, enter answer to 3 decimal places. (c) What is the price of the option if it is a European call? Round answer to 3 decimal places. (d) What is the price of the option if it is a European put? Round answer to 3 decimal places.
Suppose the current stock price of JuJube Inc is ¥100, the risk-free interest rate is 5%, the standard deviation is 25%, the time to maturity is 4 months, the strike price is ¥85, and the price of a call option is ¥25.20. Using the put-call parity relationship, the put option price is closest to A. ¥25.20 B. ¥16.40 C. ¥5.20 D. ¥8.80 E. None of the above
1. Consider a one period binomial model. Suppose So = 1 att = To; and Su = 2 and Sd = ½ at time T₁. If we assume the risk free rate R is 1.2, compute the current value of a European put with strike K = 1. Please round your answer to 2 decimals. Enter answer here 2. Compute the number of units of stock we need to short in order to replicate the option in the previous question. Please round your answer to 2 decimals. Enter answer here 3. Use Black-Scholes Formula to calculate the call price of a European call option with: So = 20, K = 20, r = 5%, c = 0,0 = 40%, T = 5; (round to two decimal digits).
You model a stock price S(t) using a stochastic process, with t measured in years. Your model implies that the risk-neutral distribution for the stock price at t = 4 has probability density function fs(4)(x) = x-40 {} 50 if 40 < x < 50 else Assume that interest is compounded continuously at nominal rate r = : 2.0%. Calculate the price of the stock at time 0 to the nearest pence. Do not enter the pound sign.
A call option with X = $50 on a stock currently priced at S = $55 is selling for $10. Using a volatility estimate of σ = .30, you find that N(d1 ) = .6 and N(d2 ) = .5. The risk-free interest rate is zero. Is the implied volatility based on the option price more or less than .30? Explain.
H2. Using the Black-Scholes model (BSOPM), compute the standard deviation that is implied by the following call option data as: the time to the option's maturity is 0.25 years, the price of the underlying option asset is RM30, the continuously compounded risk-free interest rate is 0.12. the exercise or striking price is RM30, and the cost or premium of the call is RM1.90.
Consider an european call option on a stock that is not paying dividends with the following characteristics. (i) The stock price at t = 0 is S = $30. (ii) The stricke price is $31. (iii) The volatility of the stock is 20%. (iv) The free risk interest rate is 7%. Construct a 2 period recombining Binomial tree diagram and specty tne varue or the can optron at eacn node of the tree diagram.
Consider a European call option on a non-dividend-paying stock where the stock price is $40, the strike price is $40, the risk-free rate is 4% per annum, the volatility is 30% per annum, and the time to maturity is 6 months. (a) Calculate u, d, and p for a two-step tree. (b) Value the option using a two-step tree.
Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, r4. The characteristics of two of the stocks are as follows: Correlation= Rate of return Stock Expected Return 7% 14% Required: a. Calculate the expected rate of return on this risk-free portfolio? (Hint: Can a particular stock portfolio be formed to create a "synthetic" risk-free asset?) (Round your answer to 2 decimal places.) O Yes O No Standard Deviation 30% 70% b. Could the equilibrium rybe greater than rate of return?