### European Call and Put Option Pricing**Problem Statement:**The European call option on Asset Q that expires in one year has a strike price of $32 and an option price of $4. The forward price of Asset Q in one year is $36. The annual continuously compounded interest rate is 0.08. Find the price of the put option on Asset Q with a strike price of $32.**Explanation:**In this problem, you are given:1. **European Call Option:** - **Strike Price**: $32 - **Option Price**: $42. **Asset Q:** - **Forward Price in one year**: $363. **Interest Rate:** - **Annual Continuously Compounded Interest Rate**: 0.08Using the given information, calculate the price of the put option on Asset Q with a strike price of $32. To find the price of the put option, you may use the Put-Call Parity for European options, which is expressed as:\[ C - P = S_0 - Ke^{-rt} \]Where:- $ C $ is the call option price,- $ P $ is the put option price,- $ S_0 $ is the current price of the asset,- $ K $ is the strike price,- $ r $ is the continuously compounded risk-free interest rate,- $ t $ is the time to expiration in years.Given values can be substituted into the formula to find the required put option price.

The question is based on the concept of Put-Call parity. Put call parity is a principle that…

5. The European call option on Asset Q that expires in one year has strike price $32 and option price $4. The forward price of Asset Q in one year is $36. The annual continuously compounded interest rate is 0.08. Find the price of the put option on Asset Q with strike price of $32.

5. The European call option on Asset Q that expires in one year has strike price $32 and option price $4. The forward price of Asset Q in one year is $36. The annual continuously compounded interest rate is 0.08. Find the price of the put option on Asset Q with strike price of $32.

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. Calculate the intrinsic value for each of the following call options. (Round your answers to 2 decimal places.) Company RJay RJay Sell-Mart Xenon Time to Expiration (months) RJay RJay Sell-Mart Xenon 1 2 Time to Company Expiration (months) 5 6 LO Strike 1 2 5 6 60 70 60 7.50 b. Now assume that the effective annual interest rate is 7.18%, which corresponds to a monthly interest rate of 0.58%. Calculate the present value of each call option's exercise price and the adjusted intrinsic value for each call option. (Round your answers to 2 decimal places.) Strike SO 60 70 60 7.50 62.77 62.57 67.80 6.48 Intrinsic Value SO 62.77 62.57 67.80 6.48 PV(X) Adjusted Intrinsic Value
Consider an American put option with time to expiry 15 months, and a strike of 74. The current price of the underlying is 71. Divide the time to expiry into three 5-months intervals. Assume that in each 5-months interval, the price can either rise by 5, or fall by 5, with unknown probability. The risk-free (continuously compounding) rate is 0.042. Using a binomial tree, identify the circumstances under which early exercise would be rational for the holder of this option. Draw the binomial tree and show the necessary calculation and briefly explain the answer.
The 1-year forward price of copper is $ 1/lb. The 1-year continuously compounded interest rate is 6%. One-year option prices for copper are shown in the table below. Strike Call| Put 0.95 0.0649 0.0178 0.975 0.05 0.0265 1 0.0376 0.0376 1.025 0.02740.0509 1.034 0.02430.0563 1.05 0.0194 0.0665| Suppose CDE mines copper, with fixed costs of $ 0.50/lb and variable cost of $ 0.40/lb. If CDE does nothing to manage copper risk: What is its profit 1 year from now, per pound of copper, if the copper price in 1 year is $ 0.80 $ ? What is its profit 1 year from now, per pound of copper, if the copper price in 1 year is $ 0.90 $ ? What is its profit 1 year from now, per pound of copper, if the copper price in 1 year is $ 1.00 $ What is its profit 1 year from now, per pound of copper, if the copper price in 1 year is $ 1.10 $ ? What is its profit 1 year from now, per pound of copper, if the copper price in 1 year is $ 1.20 $ ? If on the other hand CDE sells forward its expected copper production:…
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You observe the price of a European put option that expires in nine months and has a strike price of$45 is $3. The underlying stock price is $49.50. The term structure is flat, with all risk-free interestrates being 8%.a. What is the price of a European call option that expires in nine months and has a strike priceof $45? b. You observe next that the price of the call option (in part (a)) in the market is $9.59. Statewhy an arbitrage opportunity exists and explain how you would take advantage of thisopportunity. (Hint: answer should include an outline general strategy, net cost ofstrategy at initiation and net profit at expiration using the numbers in the question)
A share of MSFT is currently selling for $54. A put option, with an exercise price of $30, sells for $3. If the options expire in one year and the borrowing rate is 6%, what must be the price of a call option with an exercise price of $30?
A European put option on a barrel of crude oil with a strike price of $50 and a maturity of one-month, trades for $3.0. What is the price of the call premium with identical strike price and time until expiration, if the one-month risk-free rate is 2% and the spot price of the underlying asset is $52? NAME TYPE STRIKE PRICE PRICE AT EXPIRATION DATE A PUT 100 115 B CALL 100 95 C PUT 80 70 D CALL 80 95 A. Which of the following options are in the money? B. Which of the following options are out of the money? C. What is the intrinsic value of the C option? D. What is the upper bound and lower bound of the B option above?
Do not use chatgpt .
A power call option pays off (max(ST-X, 0))2 at time T, where ST is the stock price at time T and X is the exercise price. A stock price is currently $55. It is known that at the end of one year it will be either $60 or $50. The risk-free rate of interest with continuous compounding is 6% per annum. Calculate the value of a one year power call option with an exercise price of $54. a. What is the delta of the power call option? (sample answer: 1.55 or 0.55) b. What is the risk neutral probability of up movement? (sample answer: 55.50%) c. What is the value of the power option?
European put and call options both have an exercise price of GH¢50 that expires in 120 days.The underlying asset is priced at GH¢52 and makes no cash payments during the life of theoption. The risk-free rate is 4.5%. Find the price of the call option.
An American call option expiring in 3 - years has an exercise price of E1,500.00 on the Eswatini stockmarket and currently trades at E1,940.00. It is anticipated that the stock will rise by a factor of 1.10 andfell by a factor of 0.80. If the interest rate is 6%; find the upward prices of the option until its expiry andthe pay - offs a binomial tree.
A put option that expires in six months with an exercise price of $65 sells for $4.45. The stock is currently priced at $61, and the risk-free rate is 3.9 percent per year, compounded continuously. What is the price of a call option with the same exercise price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Call price

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