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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Similar questions

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
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
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
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.
Please show all steps
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.
A 6-month European call option on a dividend-paying stock is cur- rently selling for $1.75. The stock price is $58.56, the strike price is $55, and a dividend of $1.20 is expected in 2 months and 5 months. The risk-free interest rate is 3% per annum for all maturities. (a) What opportunities are there for an arbitrageur? Detail your answer. (b) In this market a European put option with same strike price and maturity is also available for trading. Derive the no-arbitrage $3. price of the put option if the call option has a price of c = %3D (c) The European put option in the above section is trading at $3. What opportunities are there for an arbitrageur? Detail your answer.
An option has strike price of $9 and 12 months to expiry. The current price of the underlying share is $35 and its volatility (sigma) is 23%. The riskfree rate of interest is 4% per annum. Calculate d2 for this option. [your answer should have at least 2 decimal places]

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