Financial Options: Madeline Manufacturing Quantitative Problem: Madeline Manufacturing Inc's current stock price is $45 per share. Call options for this stock exist that permit the holder to purchase one share at an exercise price of $35. These options will expire at the end of 1 year, at which time Madeline's stock will be selling at one of two prices $25 or $55. The risk-free rate is 5%. Using the binomial option pricing model, create a riskless hedged investment and answer the following question: After the payoffs have been equalized and the riskless hedged investment is created, what is the value of the portfollo in one year? Round your answer to the nearest cent.

Financial Options: Madeline Manufacturing Quantitative Problem: Madeline Manufacturing Inc's current stock price is $45 per share. Call options for this stock exist that permit the holder to purchase one share at an exercise price of $35. These options will expire at the end of 1 year, at which time Madeline's stock will be selling at one of two prices $25 or $55. The risk-free rate is 5%. Using the binomial option pricing model, create a riskless hedged investment and answer the following question: After the payoffs have been equalized and the riskless hedged investment is created, what is the value of the portfollo in one year? Round your answer to the nearest cent.

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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a company’s current stock price is $60 per share. Call options for this stock exist that permit the holder to purchase one share at an exercise price of $50. These options will expire at the end of 1 year, at which time the company’s stock will be selling at one of two prices, $45 or $70. The risk-free rate is 7%. what is the call option at the option’s expiration in 1 year ?
The price of Newgen Corp. stock will be either $94 or $103 at the end of the year. Call options are available with one year to expiration. T-bills currently yield 7.90%. (Do not leave any empty spaces; input a O wherever it is required. Omit "$" sign in your response.) a. Suppose the current price of Newgen stock is $104. What is the value of the call option if the exercise price is $94 per share? (Round the final answer to 2 decimal places.) Call option value b. Suppose the exercise price is $109 in part (a). What is the value of the call option now? Call option value
The current price of a stock is $34, and the annual risk-free rate is 3%. A call option with a strike price of $32 and with 1 year until expiration has a current value of $6.12. What is the value of a put option written on the stock with the same exercise price and expiration date as the call option? Do not round intermediate calculations. Round your answer to the nearest cent.
Assume that the current stock price is $50 per share, that call options can be purchased with an exercise price of $60 per share, that bank loans can be obtained for a 10 percent nominal rate, and that at expiration of the option in three months, the stock will either be valued at $30 or $70. Show that it is possible to replicate the stock payoff by borrowing and buying a call option.
One share of Napier Inc. is currently trading at $84 per share. In one year, the price is expected either (1) rise to $105 or (2) fall to $60. You are interested in purchasing a call option on Napier, Inc. The option has a strike price of $92 and expires in 1 year. The current risk-free rate for the year is 4%. Based on binomial options pricing (as shown in class), what is a fair price for this option? Answer to the nearest cent, with no punctuation. That is, $5.289 should be entered at 5.29.
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.
The stock price of Copious Corp. is currently $30. The stock price 1 year(s) from now will be either $34 or $27. The annual risk-free rate is 1.4%. Using the binomial model, what is the value of a call option with an exercise price of $30 and an expiration date 1 year(s) from now?
The price of Chive Corp. stock will be either $67 or $91 at the end of the year. Call options are available with one year to expiration. T-bills currently yield 4 percent. a. Suppose the current price of the company's stock is $75. What is the value of the call option if the exercise price is $65 per share? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Suppose the current price of the company's stock is $75. What is the value of the call option if the exercise price is $80 per share? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Call value b. Call value
Suppose the call option of Tesla company has an exercise price of $200 and expires in 90 days. Assume the current price of Tesla stock is $240, with a standard deviation of 40% per year. The risk-free interest rate is 6.18% per year. First, using the Black-Scholes formula, compute the price of the call. And then use put-call parity to compute the price of the put with the same strike and expiration date. Based on put-call parity, what should be the put option price? $ 2.65 $ 1.78 $ 3.69 $ 4.22 None of the above
The current price of a stock is $33, and the annual risk-free rate is 4%. A call option with a strike price of $32 and with 1 year until expiration has a current value of $6.52. What is the value of a put option written on the stock with the same exercise price and expiration date as the call option? Do not round intermediate calculations. Round your answer to the nearest cent.
The current stock price is $10. In each of the next two years, the stock price can either go up by $2 or go down by $2. The stock pays no dividends. The one-year risk-free interest rate is 5% and will remain constant during this two-year period. a) Using the Binomial Model of option pricing, calculate the price of a two-year call option on the stock with a strike price of $13. b) Using Risk Neutral valuation calculate the price of two-year put option on the stock with a strike price of $7.
Put-Call Parity The current price of a stock is $33, and the annual risk-free rate is 6%. A call option with a strike price of $31 and with 1 year until expiration has a current value of $5.58. What is the value of a put option written on the stock with the same exercise price and expiration date as the call option? Do not round intermediate calculations. Round your answer to the nearest cent. $

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