A stock has a beginning market value of $70. It can either increase in value 30% each year or decrease in value by 30%. A 3-year European call option written on the stock has an exercise price of $70. The risk-free rate of return is 5% per year. What is the current equilibrium price of the call option if you maintain a riskless portfolio by readjusting your relative positions in stocks and puts t the end of each year? Please operate with 2 decimals, show all work, and choose the closest answer. MAKE SURE TO WORKOUT CLEARLY THE STEPS TO AVOID S0% PENALTY.

A stock has a beginning market value of $70. It can either increase in value 30% each year or decrease in value by 30%. A 3-year European call option written on the stock has an exercise price of $70. The risk-free rate of return is 5% per year. What is the current equilibrium price of the call option if you maintain a riskless portfolio by readjusting your relative positions in stocks and puts t the end of each year? Please operate with 2 decimals, show all work, and choose the closest answer. MAKE SURE TO WORKOUT CLEARLY THE STEPS TO AVOID S0% PENALTY.

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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Consider an American Put option with time to expiry of 5 months and a strike price of 82. The current price of the underlying stock is 80. Divide the time to expiry into five 1-month intervals. In each interval, the stock price can either rise by 6, or fall by 6, with unknown probability. The risk-free rate is 4.2% per annum, continuously compounded. Use Binomial Model. What is the value of the option. Please provide necessary calculations.
Consider a European call on Amazon Stock (AMZN) that expires in one period. The current stock price is $100, the strike price is $120, and the risk-free rate is 5%. Assume AMZN stock will either go up to $140 or down to $80. Construct a replicating portfolio using shares of AMZN stock and a position in a risk-free asset ... what is the value of the call option? Call Option Price = $4.84 Call Option Price = $2.95 Call Option Price = $7.93 Call Option Price = $12.04
7) Consider a European call option on a -dividend-paying stock where the stock price is $40, the strıke price is $40, the risk-free rate is 4% per annum, the volatility is 30% per annum, and the time to maturity is six months. A dividend of $1 is expected in 3 months' time a. Calculate u, d̟ and p for a two-step tree b. Value the option using a two-step tree. c. Value the option with 5 time steps using DerivaGem software.
A stock price is currently $51. It is assumed that at the end of six months it will be either $30 or $74. The risk-free interest rate is 1.3% per annum with continuous compounding. The stock doesn't pay dividends. One-step binomial tree is used to value options. What is the value of a six-month European call option with a strike price of $51? Round your final result to the nearest cents and input one number only, without units or percentage sign [%], using the dot [.] to separate decimals. Your Answer: Answer
You Consider a stock with a price of $50 that is expected to increase by 6% or decrease by 8% each month over the next two months. Having a risk-free rate at 3% per year with continuous compounding, calculate the value of a two-month European put option with a strike price of $55. Repeat your calculations for a two-month American put option with a strike price of $55. Show clearly all your calculations and results with the use of the relevant equations and graphs. Discuss your investment decision in each case separately.
Please do not provide answer in image formate, thank you.
We have a 2-state, 2-period world (i.e. t = 0, 1, 2). The current stock price is 100 and the risk- free rate each period is 2%. Each period the stock can either go up by 10% or down by 10%. A European call option on this stock with an exercise price of 100 expires at the end of the second period. If the stock moves down in period 1, how would you adjust your t = 0 hedge by trading only stock? (closest answer) buy about 0.39 shares of stock sell about 0.62 shares of stock buy about 0.09 shares of stock sell about 0.39 shares of stock sell about 0.09 shares of stock buy about 0.62 shares of stock
Suppose that a stock price is currently 68 dollars, and it is known that at the end of each of the next two six-month periods, the price will be either 19 percent higher or 19 percent lower than at the beginning of the period. Find the value of a European put option on the stock that expires a year from now, and has a strike price of 67 dollars. Assume that no arbitrage opportunities exist, and a risk-free interest rate of 7 percent. Answer = dollars.
A stock is currently priced at $47. A call option with an expiration of 1 year has an exercise price of $50. The risk-free rate is 4 percent per year, compounded continuously, and the standard deviation of the stock's return is infinitely large. What is the price of the call option? Call option price
The market price of JS stock is currently $30. It is known that at the end of three months it will be either $33 or $27. The risk-free interest rate is 8% per annum with continuous compounding. (a) Use a one-step binomial tree to calculate the value of a three-month European put option on the JS stock with a strike price of $31? Use no-arbitrage arguments (you need to show how to set up the riskless portfolio). (b) Use the same one-step binomial tree and your results from (a) to determine the price of a three-month American put option on the JS stock with a strike price of $31
The share price of your favourite company is currently traded at a price of £60 and interest is compounded continuously at rate 3.7% per year. Assume that the share evolves according to a discrete time LogNormal process with time measured in years, drift µ = 0.15 and volatility o = 0.24. You decide to buy a European call option with a strike price of £63 and an expiration date of two years from now. What is the no-arbitrage price for this option? State your answer to the nearest pence. Do not enter the pound sign.
The following information is given: Time to expiration 1 year. Standard deviation 40% per year. Exercise price $72. Stock price $72. Risk free rate 4% a year. Use the Black–Scholes formula to find the value of the calloption. What is the value of the put option with the same exercise price and time to expiration? What is the value of the call option if time to expiration is 3 years? What is the value of the call option if the standard deviation is 20%? What is the value of the call option if the exercise price is $90? What is the value of the call option if the current stock price is $50? What is the value of the call option if the risk-free rate is 8%?

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