Exercise 5.1 Suppose you pay 10 to buy a European (K = 100, t = 2) call option on a given security. Assuming a continuously compounded nominal annual interest rate of 6 percent, find the present value of your return from this investment if the price of the security at time 2 is (a) 110; (b) 98.

H4.

hi could you please help solve questions 5.2?

?Q.19 Consider a European call option with the following parameters: Assuming a risk-free annual rate of 8%, what is the probability that the option will be exercised in a risk- neutral world? (If required, use the table at the beginning of the document for statistical calculations.) Strike price USD 48 Expiration 6 months Underlying's Price USD 50 Annual volatility 25% A B C 0.70 0.5761 0.6443 D 0.3668

Problem 7: A. In terms of present value, which of the following options is worth more? Is there an interest rate at which the values switch rank? If so, what is the rate at which the switch occurs? Option 1: $100 every year with the first payment in 1.5 years. Option 2: $50 every 6 months with the first payment in 1 year. Option 3: $50 every 6 months with the first payment in 1.5 years. B. In terms of present value, which of the following options is worth more? Is there an interest rate at which the values switch rank? If so, what is the rate at which the switch occurs? Option 4: $100 every year with the first payment in 1 year. Option 5: $95 every year with the first payment in .5 years.

Question 1 Help = 1. Find the expected profit for a holder of a European call option with K = 94 to be exercised in six months if the stock price at maturity is ST (90, 96, 98) with probabilities p = (1, 1, 1), given that the option is bought for Co= 10 financed by a loan at the interest rate of 10% (per annum).

10. Finding the interest rate and the number of years The future value and present value equations also help in finding the interest rate and the number of years that correspond to present and future value calculations. If a security of $4,000 will be worth $5,324.00 three years in the future, assuming that no additional deposits or withdrawals are made, what is the implied interest rate the investor will earn on the security? ○ 6.00% ○ 7.50% ○ 10.00% ○ 12.00% If an investment of $35,000 is earning an interest rate of 11.00% compounded annually, it will take value of $58,977.04-assuming that no additional deposits or withdrawals are made during this time. for this investment to grow to a Which of the following statements is true, assuming that no additional deposits or withdrawals are made? If you invest $1 today at 15% annual compound interest for 82.3753 years, you'll end up with approximately $100,000. ○ If you invest $5 today at 15% annual compound interest for 82.3753 years,…

1. Suppose that, in each period, the cost of a security either goes up by a factor of u = 2 or down by a factor d = 1/2. Assume the initial price of the security is $100 and that the interest rate r is 0. c) Assuming the strike price of a European call option on this security is $90, compute the possible payoffs of the call option given that the option expires in two periods.

QUESTION 2 • The following two investment options are viewed under an annual effective interest rate of i. Investment A is a 10-year zero coupon bond which redeems at par-value 250. Investment B is a perpetuity-immediate paying an annual payment starting with 4 and having each successive payment increase by K% from the previous payment. • If the volatility of each investment is 8, then find the value of K. Give your answer as a decimal rounded to two places (i.e. X.XX)...i.e. if your answer was K% = 2.54%, you would answer 2.54. ||

Qu 1 Help