KPT stock's current price is $100, over the next 3 years, the stock price will either increase 60% or decrease 37.5% each year. The risk free rate of return is 6% per year. KPT stock pays 35% dividends per year and the ex-dividend date is at year 1. There is one option with exercise price of = $100 and maturity = 3 years. Use 3 - time period binomial model to calculate the option price as of today for the following cases: 1. Suppose it is European call option 2. Suppose it is European put option 3. Suppose it is American call option 4. Suppose it is American put option

KPT stock's current price is $100, over the next 3 years, the stock price will either increase 60% or decrease 37.5% each year. The risk free rate of return is 6% per year. KPT stock pays 35% dividends per year and the ex-dividend date is at year 1. There is one option with exercise price of = $100 and maturity = 3 years. Use 3 - time period binomial model to calculate the option price as of today for the following cases: 1. Suppose it is European call option 2. Suppose it is European put option 3. Suppose it is American call option 4. Suppose it is American put option

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 3P

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KPT stock's current price is $100, over the next 3 years, the stock price will either increase 60% or decrease 37.5% each year. The risk-free rate of return 6% per year. KPT stock pays 35% dividends per share and the ex-dividend date is at year 1. There is one option with exercise price = $100 and maturity = 3 yaers Use 3- time period binomial model to calculate the option price as of today for the following cases: %3D 1. Suppose it is European call option 2. Suppose it is European put option 3. Suppose it is American call option 4. Suppose it is American put option
HEJO company has the current stock price of $20 today. Use a 1 step binomial tree to estimate the price of a oneyear call on thisstock. Assume the price can increase or decrease by 10% in in the next year with equal likelihood. Risk free rate is 2%, the strike is $21. A. Find the hedge ratio(H), (make sure have the correct sign, this will be written out as a decimal Answer: 0.25 B) Find the call's value or price today Answer: .58 C) Using the above information to price a put using call parity. Answer: 1.17 Please explain without using excel.
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