Please correct answer and don't use hand raiting a. A stock selling for $25 today will, in a year, be worth either $35 or $20. If the interest rate is 8%, what is the value today of a 1-year call option on the stock with exercise price $30? Use thesimultaneous equation approach of section 17.2 to price the option.b. In a, compute the state prices qU and qD, and use these prices to calculate the value todayof a 1-year put option on the stock with exercise price $30. Show that put-call parity holds.That is, using your answer from this problem and the previous problem, show that: Call price +x/(1+r) = Stock price today + Put priceShow work/formulas in EXCEL!

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Answered: a. A stock selling for $25 today will,…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter5: Financial Options

Section: Chapter Questions

Problem 5P

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Give typing answer with explanation and conclusion A call option has a strike price of $11, and a time to expiration of 0.8 in years. If the stock is trading for $20, N(d1) = 0.5, N(d2) = 0.12, and the risk free rate is 5.40%, what is the value of the call option?
Consider a put option on a stock that currently sells for £100, but may rise to £120 or fall to £80 after 1 year. The risk free rate of return is 10%, and the exercise price is £90. (a) Calculate the value of the put option using the risk-neutral valuation relationship (RNVR). Explain the reasoning behind your calculations.
Suppose that the current price of Roblox Corporation common stock is (RBLX) is $100. If the price of RBLX will be either $150 or $50 one year from now, what is the price of a call option with a strike price of $120 expiring one year from now? Assume that the current risk free rate is 1%. What is the risk neutral probability of the stock being $150 one year from now?
3. A stock has a 15 percent change of moving either up or down per period and is currently priced at $25. Using a one period binomial model, and assuming that the risk-free rate is 10 percent, complete the following. a. Determine the possible stock prices at the end of the first period. b. Calculate the intrinsic values at expiration of an at-the-money European call option. c. Find the value of the option today. d. Construct a hedge by combining a position in stock with a position in the call. Show that the return on the hedge is the risk-free rate regardless of the outcome, assuming that the call sells for the value you obtained in c. e. Determine the rate of return from a riskless hedge if the call is selling for $3.50 when the hedge is initiated.
Consider a European call option on a non-dividend-paying stock where the stock price is $40, the strike price is $40, the risk-free rate is 4% per annum, the volatility is 30% per annum, and the time to maturity is 6 months. (a) Calculate u, d, and p for a two-step tree. (b) Value the option using a two-step tree.
b) Suppose you are given the following information: Current market price of a share= R200 000 Option’s exercise price = R300 000 Time until the option expires= 5 yrs Risk free rate =4% Standard deviation of the returns on the share= 0.35 Required: i. Calculate d1 and d2 ii. Suppose N(d1) =0.7517 and N(d2) =0.4602; calculate the price of the call option on the share
You are given the following information concerning options on a particular stock: Stock price= Exercise price= Risk-free rate= Maturity= Standard deviation= $83 Intrinsic value=$ $80 6% per year, compounded continuously 6 months 47% per year (a)What is the intrinsic value of the call option? (Please keep two digits after the decimal point.) (b)What is the time premium of the call option? (Please keep two digits after the decimal point.) Time premium of the call option=$
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What are the prices of a call option and a put option with the following characteristics? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Stock price Exercise price Risk-free rate = $70 = $65 = 4.2% per year, compounded continuously = 4 months Maturity Standard deviation = 60% per year Call price=? Put price=?
Consider an American put option (K=$100) expiring in one year on a stock trading for $84. The return volatility on the stock is 27.3% and the riskless rate is 5%. Find the price of the option using a Binomial Model with two steps. (Respond with two decimal places, such as "-12.34") 26.59 Correct Answer: 18.28
Suppose you are attempting to value a 1-year expiration option on a stock with volatility (i.e., annualized standard deviation) of σ = 0.34. What would be the appropriate values for u and d if your binomial model is set up using: 1 period of 1 year. 4 subperiods, each 3 months. 12 subperiods, each 1 month.
4. A stock is selling today for $100. The stock has an annual volatility of 45 percent and the annual risk-free interest rate is 12 percent. A 1 year European put option with an exercise price of $90 is available to an investor .a.Use Excel’s data table feature to construct a Two-Way Data Table to demonstrate the impact of the risk free rate of interest and the volatility on the price of this put option: i. Risk Free Rates of 5%, 7%, 9%, 12%, 15% and 18%. ii. Volatility of 35%, 45%, 55%, and 65%. b. How is the put option price impacted by varying the risk free rate of interest? c.How is the put option price impacted by varying the volatility?

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