Bank of America (BAC) is currently trading for $15 per share. The stock pays no dividends. A one-year European call option on BAC with a strike price of $16 is currently trading for $1.25. If the risk-free interest rate is 2% per year, then the price of a one-year European put option on BAC with a strike price of $16 will be closest to:     $1.94     $1.25     $0.98     $2.25

Q: Answer the following question and give the specific process: What is the value of a derivative that…

A: This is a Cash or Nothing call. The value is 100N(d2) e -0.08*0.5

Q: A stock price is currently £10. It is known that at the end of the month l be either £15 or £9. We…

A: Stock Price  £ 10 Risk-Free Rate 0% Strike   £13 Up  £15 Down   £9

Q: 8. Consider a European call option on a stock. The exercise price is $60.5 dollars. The time until…

A: Put-Call Parity represents the relationship that must exist between the European call and put…

Q: The stock price is currently $130. Over each of the next two 2-month periods, it is expected to go…

A: A mathematical model used in finance to value options is called the binomial model and it makes the…

Q: None

A: a. Delta of the one-year call option: Delta measures the sensitivity of the option's price to…

Q: Suppose that at the present time, one can enter 5-year swaps that exchange SOFR for 8%. An off-…

A: Number of years: 5SOFR: 8%Coupon rate to be received: 11%Notional principal: $20 million

Q: An investor enters into a 2-year swap agreement to swap euros at $1.32 per euro. Soon after the swap…

A: Swap is a derivative contract between two parties who agree to exchange financial instruments or…

Q: You are trader at Tiger Capital.  Todays market (bid-ask) rates for the number of USD per EUR are…

A: Forward rate is the interest rate of the financial transaction that will take place in the future.…

Q: The stock price of BellsNWhistles is currently trading at $120. Over each of the next two six-month…

A: The binomial model is a discrete, step-by-step approach used in finance to find out the option…

Q: None

A: To calculate the 10-day 99% VaR using Monte-Carlo simulations in Excel, we need to follow these…

Q: XYZ Corporation will pay a $2 per share dividend in two months. Its stock price currently is $80 per…

A: A call option is a financial contract that, before or on a designated expiration date, grants the…

Q: A 6-month European put option on a stock with a strike price $63 is selling for $2, the current…

A: A financial concept known as "Put-Call Parity" states that there should be no chance of arbitrage…

Q: None

A: 1. Calculate the Up and Down Factors (u and d)Given:• u=1.06 (stock goes up by 6%)• d=0.95(stock…

Q: The price of a European call that expires in six months and has a strike price of $30 is $2. The…

A: Put call parity equation is used for calculation of the put price and has basic fundamental equation…

Q: The current level of the S&P 500 is 2,800. The dividend yield on the S&P 500 is 2%. The risk-free…

A: A futures contract is a contract to either buy or sell an asset (it can be a commodity or a…

Q: Stock Z is currently selling for $120. You believe that, one year from now, Stock Z will sell for…

A: The question can be solved as follows:

Q: The stock price is currently $130. Over each of the next two 2-month periods, it is expected to go…

A: A mathematical model used in finance to value options is called the binomial model and it makes the…

Q: Plot the value of a two-year European put option with a strike price of $20 on World Wide Plants as…

A: A put option is an option that gives the buyer the right but not the obligation to sell the…

Q: ean put and call options both have an exercise price of GH¢50 that expires in 120 days. The…

A: Call give the right to purchase the equity on the expiration but no obligation there to do that.

Q: Suppose a one-year European put option on a stock has an exercise price of $30 and oneyear European…

A: As per options Pricing,  Put Value + Share Price = Call Value + Present value of Strike price  if…

Q: Assume the spot Swiss franc is $0.7070 and the six-month forward rate is $0.7090. What is the Value…

A: Here, Spot Price $                      0.7070Strike Price $                      0.6870Risk Free…

Q: A put option that expires in six months with an exercise price of $65 sells for $4.45. The stock is…

A: Solution:Put call parity is the equation which shows the relationship between put price, share…

Q: Am. 103.

A: see the explanation below; In options trading, the principle of put-call parity plays a fundamental…

Q: Consider a long forward contract on Amps Inc stock with a remaining maturity of 8 months. Amps Inc…

A: No arbitrage forward price is calculated as follows:-F = (S - Present value of D) * ertwhereF =…

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.