A stock is selling today for $110. The stock has an annual volatility of 64 percent and the annual risk-free rate is 7 percent. Calculate the fair price for a 1 year European call option with an exercise price of $95. Calculate how much the current stock price would need to change for the purchaser of the call option to break even in one year. Calculate the fair price for a 1 year European put option with an exercise price of $95. Calculate how much the current stock price would need to change for the purchaser of the put option to break even in one year. Calculate the level of volatility that would make a $95 call option sell for $30. (Use Goal Seek or Solver). Calculate the level of volatility that would make a $95 put option sell for $8. (Use Goal Seek or Solver). Please show work in excel and functions/equations used.
A stock is selling today for $110. The stock has an annual volatility of 64 percent and the annual risk-free rate is 7 percent. Calculate the fair price for a 1 year European call option with an exercise price of $95. Calculate how much the current stock price would need to change for the purchaser of the call option to break even in one year. Calculate the fair price for a 1 year European put option with an exercise price of $95. Calculate how much the current stock price would need to change for the purchaser of the put option to break even in one year. Calculate the level of volatility that would make a $95 call option sell for $30. (Use Goal Seek or Solver). Calculate the level of volatility that would make a $95 put option sell for $8. (Use Goal Seek or Solver). Please show work in excel and functions/equations used.
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 stock is selling today for $110. The stock has an annual volatility of 64 percent and the annual risk-free rate is 7 percent.
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- Calculate the fair price for a 1 year European call option with an exercise price of $95.
- Calculate how much the current stock price would need to change for the purchaser of the call option to break even in one year.
- Calculate the fair price for a 1 year European put option with an exercise price of $95.
- Calculate how much the current stock price would need to change for the purchaser of the put option to break even in one year.
- Calculate the level of volatility that would make a $95 call option sell for $30. (Use Goal Seek or Solver).
- Calculate the level of volatility that would make a $95 put option sell for $8. (Use Goal Seek or Solver).
Please show work in excel and functions/equations used.
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