The current stock price of Alcoco is $60, and the stock does not pay dividends. The instantaneous risk-free rate of return is 6%. The instantaneous standard deviation of Alcoco's stock is 40%. You want topurchase a call option on this stock with an exercise price of $65 and an expiration date 30 days from now. Based on the Black-Scholes OPM, the call option's delta will beA.B.0.320.250.600.28

Call option delta shows how much will change in option prices with the change in value of assets in…

e current stock price of Alcoco is $60, and the stock does not pay dividends. The instantaneous risk-free rate of return is 6%. The instantaneous standard deviation of Alcoco's stock is 40%. You want to urchase a call option on this stock with an exercise price of $65 and an expiration date 30 days from now. Based on the Black-Scholes OPM, the call option's delta will be A. 0.32 B, 0.25 OC, 0.60 OD, 0.28

e current stock price of Alcoco is $60, and the stock does not pay dividends. The instantaneous risk-free rate of return is 6%. The instantaneous standard deviation of Alcoco's stock is 40%. You want to urchase a call option on this stock with an exercise price of $65 and an expiration date 30 days from now. Based on the Black-Scholes OPM, the call option's delta will be A. 0.32 B, 0.25 OC, 0.60 OD, 0.28

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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At time t=0 Mr. Anderson sets up a riskless portfolio by taking a position in an option and in the underlying asset. Explain what Mr. Anderson needs to do at time t=1 to keep his portfolio risk neutral and why. A stock price is currently $100 and at the end of four months it will be ST . A derivative written on this stock pays off expST1/3 in four months. Given that u = 1.15, d = 0.87, and that the risk-free interest rate is 10% p.a. (continuously compounded), answer the following questions using a one-period binomial model (show all the details of your calculations and display the results with four decimal places): Calculate the value of ∆ Calculate the current value of the derivative.
Black-Scholes Model Use the Black-Scholes model to find the price for a call option with the following inputs: (1) current stock price is $28, (2) strike price is $34, (3) time to expiration is 6 months, (4) annualized risk-free rate is 6%, and (5) variance of stock return is 0.09. Do not round intermediate calculations. Round your answer to the nearest cent. $
1.
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
The spot price of a share of XYZ stock is $100. The annual risk-free continuously compounded interest rate is 0.07, and the stock pays no dividends. The annualized standard deviation of the continuously compounded stock return is 0.2. Find the price of a European call option on the stock with strike price $110 and that matures in 4 years.
Consider ABY corp stock. ABY corp stock does not pay a dividend. The risk-free rate is7%. The market’s expected return is 10% and its standard deviation is 15%. The stock trades at $50, it hasβ = 0.7 , and the standard deviation of the stock’s return is 25%. There is a call option on the stock expiringin 1 year at strike 100, which costs $40, and a put option at 110, which costs $80. What is the highest Sharperatio that you can achieve, by trading (i.e. taking arbitrary large long and short positions in) the stock, themarket, and the call and put options, and what strategy do you use to achieve it?
You are attempting to value a call option with an exercise price of $107 and 1 year to expiration. The underlying stock pays no dividends, its current price is $107, and you believe it has a 50% chance of increasing to $123 and a 50% chance of decreasing to $91. The risk-free rate of interest is 12%. Calculate the call option's value using the two-state stock price model. (Do not round intermediate calculations and round your final answer to 2 decimal places. Omit the "$" sign in your response.) Call option's value 60
Black-Scholes Model Use the Black-Scholes model to find the price for a call option with the following inputs: (1) current stock price is $32, (2) strike price is $37, (3) time to expiration is 3 months, (4) annualized risk-free rate is 7%, and (5) variance of stock return is 0.16. Do not round intermediate calculations. Round your answer to the nearest cent.
A stock price is currently $52. Its volatility is 35% p.a. . The risk-free interest rate is 8% p.a. with continuous compounding. What is the value of a 2-year European call option with a strike price of $55, using a 2-step binomial tree? Without doing any calculations, explain what would happen to the value of the option if the stock volatility decreases
Generic Stock Inc. (GS) is trading at $100. A call option with a strike price of $102, which expires in 6 months, costs $9.52 (assuming a risk - free rate of 5% and a volatility of 0.33). What is the Delta of this option
5) A certain non-dividend paying stock is trading at $50 and its volatility is o = 25%. The risk-free interest rate is 1.25% per anuum with continuous compounding. a) Use a two-step tree (At = .5) to compute the value of 1-year European put option with strike price of $50? b) What would it be the price if the put were to be American?
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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