d. Consider a stock with a current price of P $27 Suppose that over the next 6 months the stock price will either go up by a factor of 1.41 or down by a factor of 0.71. Consider a call option on the stock with a strike price of $25 that expires in 6 months. The nsk-free rate is 6%. (1) Using the binomial model, what are the ending values of the stock price? What are the payoffs of the call option? (2) Suppose you write one cal option and buy N shares of stock How many shares must yoCu buy to create a portfolio with a riskless payoff Ge, a hedge portfolio)? What is the payoff of the portfolio? (3 Wratis tne present value of the hedge port- folo? What is the value of the call option?.

d. Consider a stock with a current price of P $27 Suppose that over the next 6 months the stock price will either go up by a factor of 1.41 or down by a factor of 0.71. Consider a call option on the stock with a strike price of $25 that expires in 6 months. The nsk-free rate is 6%. (1) Using the binomial model, what are the ending values of the stock price? What are the payoffs of the call option? (2) Suppose you write one cal option and buy N shares of stock How many shares must yoCu buy to create a portfolio with a riskless payoff Ge, a hedge portfolio)? What is the payoff of the portfolio? (3 Wratis tne present value of the hedge port- folo? What is the value of the call option?.

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

Assume that you hold a call option on stock A. The call has a strike price of 50 and expires in 6 months. Stock A pays no dividends. 1. What is the payoff from the call if stock A is trading at 57 in 6 months? 2. What is the payoff from the call if stock A is trading at 45 in 6 months? 3. Draw a payoff diagram that shows the payoff of the call as a function of the underlying stock price.
Use the Black-Scholes formula for the following stock: Time to expiration Standard deviation Exercise price Stock price Interest rate |||||||||| Value of a call option = = 6 months 56 % per year 55 = 54 6% Calculate the value of a call option. (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "S" sign in your response.)
Let S = $100, K = $95, \sigma = 30%, r = 8%, T = 1, and \delta = 0. For simplicity, let u = 1.3, d = 0.8 and n = 2 (that is, 2 periods). When constructing the binomial tree for the European call option, what is A (Stock Share Purchased in the replicating portfolio) at the first node (Time 0)? Question 11 options: 0.1789 0.3886 1.0000 0.2550 0.6912
Assume that you have shorted a call option on Intuit stock with a strike price of $40. The option will expire in exactly three months' time. a. If the stock is trading at $55 in three months, what will you owe? b. If the stock is trading at $35 in three months, what will you owe? c. Draw a payoff diagram showing the amount you owe at expiration as a function of the stock price at expiration. a. If the stock is trading at $55 in three months, what will you owe? If the stock is trading at $55 in three months, you will owe $ (Round to the nearest dollar.)
A stock is currently priced at $42 and will move up by a factor of 1.24 or down by a factor of .93 each period over each of the next two periods. The risk-free rate of interest is 3 percent. What is the value of a put option with a strike price of $51? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Consider a call option on one share of BP with a strike price of $70 and exercise time 1 quarter (3 months). Suppose the current stock price for BP is S(0) = $65 per share. Suppose further that A(0) = $100, A(1) = $102 and two possible prices for S(1) are S $74 with probability 0.5, S(1) = $66 with probability 0.5. Evaluate the expected returns E(Ks) and E(Kc) for the stock and the option.
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
Consider a two - period binomial model, where each period is 6 months. Assume the stock price is $75.00, \sigma 0.35, and r = 0.05. An American call option with a strike price of $80 would be exercised early at what dividend yield? () (A) 5.0% (B) 7.0 % (C) 9.0% (D) Never exercise early
Consider a put option whose underlying asset is a stock index with 6 months to expiration and a strike price of $1000. Suppose the risk-free interest rate for the six months is 2% and that the option’s premium is $74.20. (a) Find the future premium value in six months. (b) What is the buyer’s profit is the index spot price is $1100? (c) What is the buyer’s profit is the index spot price is $900 Only typed answer
A stock is currently priced at $52 and will move up by a factor of 1.14 or down by a factor of .90 each period over each of the next two periods. The risk-free rate of interest is 3 percent. What is the value of a put option with a strike price of $58? (Do not round intermediate calculations. Round your answer to 2 decimal places.) X Answer is complete but not entirely correct. Value of a put option $ 4.57
A stock is currently selling for $39. In one period, the stock will move up by a factor of 1.29 or down by a factor of .53. A call option with a strike price of $50 is available. If the risk-free rate of interest is 2.5 percent for this period, what is the value of the call option?

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