A stock price is currently $71. Over each of the next two 3-month periods it is expected to go up by 8% ordown by 8%. The risk - free interest rate is 4% per annum with continuous compounding. What is the valueof a 6 month European call option with a strike price of $70?Keep intermediate step numerical values correct to 3 decimal places and calculate your final answer to 2decimal places.

Approach to solving the question: Step 1: Calculate the Upward and Downward Factors The up and down…

Answered: A stock price is currently $71. Over…

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 currently $100. Over each of the next two six month periods it is annim with continuous compounding. What is the value of a one year European call option with a strike price of $90
Finance Suppose that a stock price is currently selling at $170. Over each of the next two 3-month periods it is expected to go up by 5% or down by 5%. The risk-free interest rate is at at 2.5% each quarter.What is the value of a 6-month European call option with a strike price of S160? What is the value of a 6-month European put option with a strike price of $170?
The stock price is currently $130. Over each of the next two 2-month periods, it is expected to go up by 3% or down by 4%. The risk - free interest rate is 1.5% per annum with continuous compounding. What is the value of a 4- month European put option with a strike price of $120? Use a binomial tree model, and round the result to three decimal places. 1. $1.019 2. $2.602 3. S 0.029 4. $0.0 5. $6.645
Calculate the price of a 6-month European call option on a non-dividend paying stock with a strike price of $50 when the current stock price is $50, the risk-free rate is 10% per annum, and the volatility is 30% per annum Give typing answer with explanation and conclusion
A stock price is currently $52. At the end of 9 months, it will be either $60 or $44. The risk-free interest rate is 6%. Use the no-arbitrage binomial method to calculate the value of a 9-month European call option on the stock with strike price $52. Calculate the same option value using the risk-neutral method
Consider a one-step binomial model over a 3-month period. The current asset price is $100. In 3 months, the asset price will increase by 8% with probability 70% and decrease by 5% with probability 30%. The risk free interest rate is 1% per year with continuous compounding. What's the price of a 3-month at-the-money European call option? Keep 2 digits after the decimal point. Do not include $ sign in your answer.
A put option that expires in six months with an exercise price of $65 sells for $4.45. The stock is currently priced at $61, and the risk-free rate is 3.9 percent per year, compounded continuously. What is the price of a call option with the same exercise price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Call price
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A stock price is currently $60. You predict that at the end of 6 months stock price will increase or decrease by 20%. The risk-free interest rate is 10% per annum with continuous compounding. What is the value of a 6-month European put option with a strike price of $60?
Ll.9.
The current stock price of MRF is ₹ 81000. A European call option on the stock with exercise price of ₹ 75000 will expire in 40days. The annual continuously compounded risk-free interest rate is 10%, standard deviation of the continuously compounded rate of return is 60% p.a. Calculate the value of the Call option. Find the value of the Put option using Put-Call Parity Rule.

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