A stock index is currently 1,500. Its volatility is 18%. The risk-free rate is 4% per annum (continuously compounded) for all maturities and the dividend yield on the index is 2.5%. Calculate values for u, d, and p when a six-month time step is used. What is the value a 12-month American put option with a strike price of 1,480 given by a two-step binomial tree. 78.41 79.85 80.04 79.57

A stock index is currently 1,500. Its volatility is 18%. The risk-free rate is 4% per annum (continuously compounded) for all maturities and the dividend yield on the index is 2.5%. Calculate values for u, d, and p when a six-month time step is used. What is the value a 12-month American put option with a strike price of 1,480 given by a two-step binomial tree. 78.41 79.85 80.04 79.57

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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Suppose the stock price is currently $75. For the next six months there is 7.5% probability that the stock will appreciate 8% with 4% annualized drift. The risk-free rate is 1.53% per year with continuous compounding. The dividend yield is 1 p.a.%. Value the following option using binomial tress and 12-time steps. a.) What is the value of a six-month European put option with a strike price of $86. b.) What is the value of a six-month American put option with a strike price of $70. c.) What is the value of a six-month European call option with a strike price of $86. d.) What is the value of a six-month European put option with a strike price of $70. e.) Estimate how high the minimum strike price must be for it to be optimal to exercise the put option immediately.
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.
Consider a call option on one share of BP with a strike price of $70 and exercise time 1 quarter (3 months). Suppose the current stock price for BP is S(0) = $65 per share. Suppose further that A(0) = $100, A(1) = $102 and two possible prices for S(1) are S $74 with probability 0.5, S(1) = $66 with probability 0.5. Evaluate the expected returns E(Ks) and E(Kc) for the stock and the option.
The current stock price is $20, the risk - free interest rate is 5% per annum (consecutive compounding), and the volatility is 15% per annum. Calculate the price of a European call option with a maturity of 3 months and an exercise price of $21. However, this stock is assumed to be non - dividend.
A stock price is currently 40 and has a volatility of 25% and a dividend yield of 2%. the risk-free rate is 7%. what is the value of a european six-month put option with a strike price of 42 using a two-step tree? a. $3.15 b. $3.39 c. $3.67 d. $3.86
am. 66.
What is the price of an American CALL option that is expected to pay a dividend of $2 in three months with the following parameters? s0 = $40d = $2 in 3 monthsk = $43 r = 10%sigma = 20%T = 0.5 years (required precision 0.01 +/- 0.01)
Suppose the call option of Tesla company has an exercise price of $200 and expires in 90 days. Assume the current price of Tesla stock is $240, with a standard deviation of 40% per year. The risk-free interest rate is 6.18% per year. First, using the Black-Scholes formula, compute the price of the call. And then use put-call parity to compute the price of the put with the same strike and expiration date. Based on put-call parity, what should be the put option price? $ 2.65 $ 1.78 $ 3.69 $ 4.22 None of the above
1) In a one-period binomial model, assume that the current stock price is $100, and that it will rise to $130 or fall to $70 after one month. The gross one month risk - free rate is 1.02 %. Using risk neutral pricing, what is the price of a 100- strike one-month call option? Round your calculaton for q and 1 - q to four (4) decimal places. a. $14.90 b. $14.71 c. $15.05 d. $15.69 2) In a one-period binomial model, assume that the current stock price is $100, and that it will rise to $120 or fall to $80 after one month. The gross one month risk - free rate is 1.03%. Using risk neutral pricing, what is the price of a 100-strike one-month put option? Round your calculaton for q and 1 - q to three (3) decimal places a. $8.00 b. $8.25 c. $8.50 d. $8.75
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
A stock is currently trading at $42. Over the next 3 periods, it is expected to go up by 10% or down by 10%. Assume that the risk-free rate of interest is 6% per annum. a. What is the value of a three-month American call option with an exercise price of $40? b. What is the value of a three-month American put option with an exercise price of $46?

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