3. You are given the following: (i) The current price to buy one share of XYZ stock is 500. • (ii) The stock does not pay dividends. • (iii)The annual risk-free interest rate, compounded continuously, is 6%. (iv) A European call option on one share of XYZ stock with a strike price of K that expires in one year costs 66.59. • (v) A European put optionn on one share of XYZ stock with a strike price of K that expires in one year costs 18.64. Using put-call parity, calculate the strike price, K.

3. You are given the following: (i) The current price to buy one share of XYZ stock is 500. • (ii) The stock does not pay dividends. • (iii)The annual risk-free interest rate, compounded continuously, is 6%. (iv) A European call option on one share of XYZ stock with a strike price of K that expires in one year costs 66.59. • (v) A European put optionn on one share of XYZ stock with a strike price of K that expires in one year costs 18.64. Using put-call parity, calculate the strike price, K.

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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Optival’s stock is currently trading at $60 per share with a historical volatility of 20%. The risk-free rate is 4%. Consider a European call and put option on Optival’s stock with an exercise price of $55 that expires in 2 years. Use excel or a similar program to determine the option price using the Black-Scholes formula. (a): What is the value the European call and put option on Optival’s stock with a strike price of $60? (b): To the nearest cent, how much does the option value change for the following adjustments to the input values: ∆ in Call Value ∆ in Put Value ↑ stock price by $1 to $61 ↑ strike price by $1 to $56 ↑ the rF by 1% to 5% ↑ volatility by 1% to 21% ↑ time to maturity by 1 yr (c): Why does the value of the call increase by less than $1 when the stock price increases by $1? (d): To the nearest percent and holding all else constant, how high would the risk-free rate need to be for a 1 year increase in time to maturity to have a negative impact on the value of…
A put option in finance allows you to sell a share of stock at a given price in the future. There are different types of put options. A European put option allows you to sell a share of stock at a given price, called the exercise price, at a particular point in time after the purchase of the option. For example, suppose you purchase a six-month European put option for a share of stock with an exercise price of $26. If six months later, the stock price per share is $26 or more, the option has no value. If in six months the stock price is lower than $26 per share, then you can purchase the stock and immediately sell it at the higher exercise price of $26. If the price per share in six months is $22.50, you can purchase a share of the stock for $22.50 and then use the put option to immediately sell the share for $26. Your profit would be the difference, $26 − $22.50 = $3.50 per share, less the cost of the option. If you paid $1.00 per put option, then your profit would be $3.50 − $1.00…
Please make sure its correct thanks a lot
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4b) A trader is asked to value a 1-year European call option for Facebook Ltd. common stock, which last traded at 43 USD. He has collected the following information: call and put option exercise price 45 USD, 1-year put option price 4 USD, 1-year Treasury bill rate 5.50% continuously compounded. Calculate the European call option value using put-call parity.
A share is currently priced at £50. After one time period the share price will either increase to £70 or decrease to £40. Assume the interest rate is 4% per time period. Find the no-arbitrage price of a European derivative on the share which has payoff £90 if the share price goes up and £110 if the share price goes down. State your answer to the nearest pence. Do not enter the pound sign.
Previously, you purchased a European put option on Parlicoot Inc shares. The option has just matured. The strike price on the option is 98.17, while the current stock price is 89.19. What is your payoff?
A company’s stock currently sells for $81.16. A one-year European put option on that stock with strike price of $85 sells for $16.24, and the risk free interest rate is 1.6%. The market expects the company to pay dividends during that period, and the market consensus is that present value of those dividends is $5.26. The price of a one-year European call option on that stock with strike price of $85 is $_________. (Note i: answer must be accurate to the nearest cent). (Note ii. Use annual compounding NOT exponential compounding for the purpose of this question).
Suppose that the observed spread between the yield on a 2-year zero-coupon riskless bond and the yield on a 2-year zero-coupon bond issued by a corporation is 1.85%. By how much (as a percentage) would the Black- Scholes-Merton model overstate the value of a 2-year European option sold by the corporation?
6. An investor buys a one-year European-style put option on the same stock. The strike is $105, and the premium is $10. In a year, the spot stock price is $90 per share. What is the payoff from financially settling the long put position? In a year, the spot stock price is $95 per share. What is the payoff from financially settling the long put position? In a year, the spot stock price is $100 per share. What is the payoff from financially settling the long put position? In a year, the spot stock price is $105 per share. What is the payoff from financially settling the long put position? In a year, the spot stock price is $110 per share. What is the payoff from financially settling the long put position?

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