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. a. Calculate the fair price for a 1-year European call option with an exercise price of $95. b. Calculate how much the current stock price would need to change for the purchaser of the call option to break even in one year. c. Calculate the fair price for a 1 year European put option with an exercise price of $95
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. a. Calculate the fair price for a 1-year European call option with an exercise price of $95. b. Calculate how much the current stock price would need to change for the purchaser of the call option to break even in one year. c. Calculate the fair price for a 1 year European put option with an exercise price of $95
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.
a. Calculate the fair price for a 1-year European call option with an exercise price of $95.
b. Calculate how much the current stock price would need to change for the purchaser of
the call option to break even in one year.
c. Calculate the fair price for a 1 year European put option with an exercise price of $95
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