A binary (a.k.a. digital, all-or-nothing) call option has a strike price of $51. It also has a knock-out barrier of $65. If the option pays you at expiration, it pays you exactly $10. The risk-free rate is 9.2% per period. If the underlying asset goes up, it will go up 20% per period and if it goes down, it will go down 10% per period. The underlying asset currently costs $50. The option expires in 2 periods. How much is this option worth today? Round to the nearest penny
A binary (a.k.a. digital, all-or-nothing) call option has a strike price of $51. It also has a knock-out barrier of $65. If the option pays you at expiration, it pays you exactly $10. The risk-free rate is 9.2% per period. If the underlying asset goes up, it will go up 20% per period and if it goes down, it will go down 10% per period. The underlying asset currently costs $50. The option expires in 2 periods. How much is this option worth today? Round to the nearest penny
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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13.
I just made this one up. To my knowledge, "Binarrier Options" don't exist, but maybe they do.
A binary (a.k.a. digital, all-or-nothing) call option has a strike price of $51. It also has a knock-out barrier of $65. If the option pays you at expiration, it pays you exactly $10. The risk-free rate is 9.2% per period. If the underlying asset goes up, it will go up 20% per period and if it goes down, it will go down 10% per period. The underlying asset currently costs $50. The option expires in 2 periods. How much is this option worth today? Round to the nearest penny
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