Consider a call option on Stock X. The call expires in 7 months and has a strike price X=$22.  The current price of stock X is $20. In 7 months, the stock price can either go up to 23 (up state) or go down to $19 (down state). The call premium in the 2 states :  $1 in the up state and $0 in the down state. Assume that the risk-free rate is 12% per annum. Calculate the hedge ratio. (Please report your answer using 2 decimals) Continuation of Question 1.Calculate the value of the call in period 0.  (Hints: Use continuous discounting when calculating present value. Also, please report your answer using 4 decimals)

Q: The current price on a common stick is $30/share and its volatility is 25%. The call option for this…

A: A financial instrument that provides the opportunity to the buyer to purchase the underlying assets…

Q: A stock price is currently $51.50. It is known that at the end of sixmonths it will be either $55 or…

A: Options are derivatives, whose values are derived from the value of an underlying asset. There are…

Q: share is currently trading at $100. At the end of each day for the next 60 days, it will change by…

A: The binomial option pricing model is a method used to evaluate the price of an option, which gives…

Q: The current price of a stock is $16. In 6 months, the price will be either $20 or $12. The annual…

A: The call option is a derivative instrument that allows the holder to buy the asset at a…

Q: Assume BBB stock price is currently $20. In each six-month period, it will either fall by 50 percent…

A: Options are derivative contracts. That is, the value of options is derived from the value of an…

Q: The price of Bobco stock is currently $60. In one year, the price will either be $66 or $54. If the…

A: The pricing of options by the means of a replicating portfolio is the process by which the payoffs…

Q: A stock is currently selling for $59. Over the next two periods, the stock will move up by a factor…

A: A mathematical method used in finance to value options and other derivatives is called the binomial…

Q: and the strike price is $80. Currently, the price of XYZ stock is $65. The 3-month in compounded) is…

A: Call options are derivative products that gives the opportunity buy stock on expiration but there is…

Q: A put option will mature in six months. The standard deviation of the underlying stock returns is…

A: The Black-Scholes model is a mathematical formula used to calculate the fair price or theoretical…

Q: A call option is currently selling for $3. It has a strike price of $65 and six months to maturity.…

A: Put-call parity is an options pricing that defines the relationship between the prices of European…

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: 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: . Suppose the call option of Tesla company has an exercise price of $200 and expires in 90 days.…

A: Here,Spot Price is $240Strike Price is $200Risk Free Rate is 6.18%Standard Deviation is 40%Time to…

Q: A stock is currently selling for $60. Over the next two periods, the stock will move up by a factor…

A: Current Selling Price = $60 Stock moved up by 1.15 times = 60*1.15 = 69 Stock moved down by 0.87…

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: A one year call option contract of Office Pro sells for $2,200. In one year, the stock price will be…

A: A call option is a contract where the buyer has the right but not the obligation of purchasing the…

Q: A stock has a price of $37 and an annual return volatility of 59 percent. The risk-free rate is 3.13…

A: The Black-Scholes model is a mathematical model used to calculate the theoretical price of options.…

Q: What are the prices of a call option and a put option with the following characteristics? (Do not…

A: Here, Spot Price $74.00Strike Price $70.00Risk Free Rate4.40%Standard Deviation62.00%Dividend…

Q: The current price of a stock is $50, and the annual risk-free rate is 5.5%. A call option with a…

A: Value of call option = C0 = $13.78Current price of the stock = S0 = $50Strike price = K = $43Risk…

Q: What are the prices of a call option and a put option with the following characteristics? Stock…

A: Here,

Q: The price of a stock is currently $20. Over each of the next two three-month periods, the stock can…

A: a)> A European put option with a strike price of $22 and a term of six months is worth $1.71…

Q: Value of a stock is currently at $40. Volatility of that stock is 30% per year and risk- free…

A: Options are derivative products that gives the holder of option to buy or sell the stock on…

Q: Consider an American put option with time to expiry 15 months, and a strike of 74. The current price…

A: Binomial tree : A binomial tree is a representation of the intrinsic values of an option taken at…

Q: You observe the price of a European put option that expires in nine months and has a strike price of…

A: We will use the put-call parity to calculate the value of the call and thereafter we will find…

Q: A stock price is currently $52. At the end of 9 months, it will be either $60 or $44. The risk-free…

A: The hypotheses of binomial option price models are that there are two potential outputs, so the…

Q: A share of MSFT is currently selling for $54. A put option, with an exercise price of $30, sells for…

A: given, S0= $54 k = $30 p = $3 r=6% t=1

Q: A power call option pays off (max(ST-X, 0))2 at time T, where ST is the stock price at time T and X…

A: A contract that allows its buyer to purchase or sell the underlying at a price specified today on a…

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: 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: The risk-free rate is 8% per annum with continuous compounding. The price of stock CPU is $30. CPU…

A: Risk free rate = r = 8% per yearPrice of stock = $30Strike price = $32Period = t = 6 months = 6 /…

Q: An option has a 40% (actuarial) chance of paying $7.03 when the underlying asset increases by 6.3%…

A: The payoff from the option in two states are known. The risk neutral price of the option needs to be…

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.