5. Shares in Rugby plc, a non-dividend-paying company, are trading at £7.50. A one-year Europeancall option on Rugby plc stock with strike price £8.00 has a risk-neutral probability of exerciseequal to 40%.Explain what this implies about the risk-neutral probability of exercise for a one-year Europeanput option on Rugby plc with strike price £8.00. *

The call and put option are derivative products that gives the opportunity of buying and selling the…

5. Shares in Rugby plc, a non-dividend-paying company, are trading at £7.50. A one-year call option on Rugby plc stock with strike price £8.00 has a risk-neutral probability of exe equal to 40%. Explain what this implies about the risk-neutral probability of exercise for a one-year Eur put option on Rugby plc with strike price £8.00. *

5. Shares in Rugby plc, a non-dividend-paying company, are trading at £7.50. A one-year call option on Rugby plc stock with strike price £8.00 has a risk-neutral probability of exe equal to 40%. Explain what this implies about the risk-neutral probability of exercise for a one-year Eur put option on Rugby plc with strike price £8.00. *

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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12. A non paying dividend stock is priced at 50. Call option delta is 0.5. Stock volatility is 0.29. By using BS model, the premium of 55-strike priced European call option in 6 months is
Kk.192.
Awesome Company's stock is currently trading at 50 per share and the risk free rate is currently 6% per year. The price of a put option on Awesome stock with a strike price of 30 and 6 months to maturity is currently 1. Determine the price of a call option with the same strike price and maturity as the put option. No dividends will be paid during the remaining lifetime of the option. A. 20.96 B. 21.86 C. 22.70 D. 51.00
4. Shares of ABC Ltd are currently traded at Rs .1770. A call option with a strike price of 1750 and expiring in 90 days is traded at Rs.60 while a put with same strike price and maturity is traded at Rs .25. Show the payoff profile of a long straddle position using these options assuming that the share price on expiry date falls in the range of 1550 to 1950 at intervals of Rs.50. Also show the payoff diagram.
Taagart has a volatility of 25% and a current share price of $40. Taagart does not pay dividends. The risk- free interest rate is 4%. Assume a one-year at-the-money call option. An increase in the volatility of the option from 25% to 40% affects the price of this call option so that it: A) increases by $0.70 B) increases by $2,30 C) decrease by $1,70 D) increases by $2,80
Problem 1. Assume that the interest rate is 5%, continuously compounded annually, and consider call and put options of both American and European style expiring in 6 months on non-dividend paying stock. For each of the following scenarios, check if you can find an arbitrage opportunity and, if you can, describe it: (i) The strike price of a European put option is $3 and the option is traded at $4. (ii) The shares are traded at $3 and the American call option is traded at $3.20.
T-bills currently yield 3.6 percent. Stock in Deadwood Manufacturing is currently selling for $73 per share. There is no possibility that the stock will be worth less than $66 per share in one year. a-1. What is the value of a call option with a $50 exercise price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a-2. What is the intrinsic value? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) b-1. What is the value of a call option with a $48 exercise price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b-2. What is the intrinsic value? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) c-1. What is the value of a put option with a $50 exercise price? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) c-2. What is the intrinsic value?…
Consider a convertible bond trading at $1,000 with a conversion ratio of 37.383, coupon rate of 9.5%, and par value of $1,000. If the firm's stock trades at $23 and provides an annual dividend of $0.75, what is the premium payback period? 1.81 1.99 2.23 2.09 <-000
Shopify, Inc common stock currently sells for $1,185.31 per share, and the standard deviation of returns is 68.35%. A put option with a strike price of $1,100 is currently trading on the market. The option expires in 0.15 years, and the risk-free rate of return is 4.3%. Shopify does not pay a dividend. What is rho (p) for this put option assuming a continuous model such as the Black-Scholes model? O 94.5148 O 93.8567 O 93.3034 O 70.6357
Pixar stock is expected to pay a single $1.7 dividend in 2.0 months. Suppose you enter into a 7.0 month forward contract to buy one share of Pixar stock when the share price is $40.4 per and the risk-free interest rate is 6.25 percent continuously compounded. What is the forward price? 37.331 40.155 43.645 40.137

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