Homework due Aug 12, 2024 07:00 CDTQuestion 40.0/15.0 points (graded)All assumptions of the Black-Scholes-Merton option pricing model hold. Stock XYZ is priced atSxyz $40. It has volatility σ = 25% per year. The annualized continuously-compounded risk-freeinterest rate is r = 3.5%.Compute the price of a European call option with strike price K = 40, which matures in 6 months.$Compute the price of a European put option with the same strike price and the same maturity date usingthe put-call parity.$Submit You have used 0 of 5 attemptsSave

Step 1: Compute the price of the European call option using the Black-Scholes formulaThe…

Answered: Homework due Aug 12, 2024 07:00 CDT…

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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Aa.1 The current price of stock XYZ is 100. In one year, the stock price will either be 120 or 80. The annually compounded risk-free interest rate is 10%. i. Calculate the no-arbitrage price of an at-the-money European put option on XYZ expiring in one year. ii. Suppose that an equivalent call option on XYZ is also trading in the market at a price of 10. Determine if there is a mis-pricing. If there is a mis-pricing, demonstrate how you would take advantage of the arbitrage opportunity.
Give typing answer with explanation and conclusion 5. A European call option on Home Depot stock has a strike price of $160 and expires in 0.9 years. Home Depot stock has a current market price of $165.99 and the risk-free rate is 4%. What must be the minimum price of the option?
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1. Black-Scholes. A European call style option is made for a security currently trading at $ 55 per share with volatility .45. The term is 6 months and the strike price is $ 50. The prevailing no-risk interest rate is 3%. What should the price per share be for the option?
Q.3 Determine the risk-neutral value for a European put option (for a FLB (First Local Bank) share) that expires in eight months. The strike price is R500 and the current price is R650. The interest rate is 11%, and the volatility of the security is 0.026.
You use a forward binominal tree to price options on a futures contract. You are given: i) The period is 1 year ii) The volatility of the futures price is 30% iii) The initial futures price is 100 iv) The continuously compounded risk-free rate is 3% Calculate the price of a one-year 110-strike European call option on the futures contract. A. 8.68 B 9.13 C 10.32 D 11.54 E 12.06
27.6. A 6-month Asian average strike call option on a nondividend paying stock based on the arithmetic average of quarterly prices is modeled with a 2-period binomial tree. You are given: (1) The stock price is 60. (ii) o= 0.3 (iii) The continuously compounded risk-free interest rate is 0.04. (iv) The binomial tree is constructed using forward prices. Calculate the risk-neutral probability of an option payoff greater than 0.
An increase in the rate of interest A fall in the level of demand A decrease in the rate of interest A stock sells P110. A call option on the stock with an exercise price of P105 and expires in 43 days. If the interest rate is 0.11 and the standard deviation of the stock's return is 0.25, what is the price of the CALL OPTION according to the Black-Scholes Model? P6.92 P8.05 T P7.68 P6.88 O Focu: States)
Back Open in Safa Consider a stock with a volatility of its logarithm of =0.2. The current price of the stock is $88 and it pays no dividends. Find the option prices on this stock that has an expiration date 4 months from now and a strike price of $90. The current interest rate is 15% compounded monthly. (Write the answers with two decimal places. x.yz) European call option premium European put option premium = $4 Home Courses Tasks Calendar Messages Back Open in Safa European put option premium =| American call option premium = 24 American put option premium = %24 %24
Q.3Determine the risk-neutral value for a European put option (for a FLB (First Local Bank) share) that expires in eight months. The strike price is R500 and the current price is R650. The interest rate is 11%, and the volatility of the security is 0.026.
Maturity (days) Strike 66 Part1: SO 620 595.9355586 ● r (annualized) O 0.056329721 11% Option Type Call Use the data you are provided with on blackboard to replicate and interpret the following figures Call price as a function of the current underlying price S0 or put price as a function of the current underlying price SO depending on the data assigned to you. Carefully interpret the figures. Make sure you are not simply describing the figures but that you are answering the question of why we observe the pattern

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