nsider a one-period binomial model in which the underlying is at 65 and can go up 30% and down 22%. The risk-free rate is 8%. The price of the call option with exercise prices of 70 would be: a. 84.50 b. 0.5769 c. 0 d. 7.75
nsider a one-period binomial model in which the underlying is at 65 and can go up 30% and down 22%. The risk-free rate is 8%. The price of the call option with exercise prices of 70 would be: a. 84.50 b. 0.5769 c. 0 d. 7.75
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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Question
- Consider a one-period binomial model in which the underlying is at 65 and can go up 30% and down 22%. The risk-free rate is 8%. The price of the call option with exercise prices of 70 would be:
|
a. 84.50 |
b. 0.5769 |
c. 0 |
d. 7.75 |
- Refer to Problem #1. Suppose that the call is selling for 9 in the market and assume that we would execute an arbitrage transaction, the
rate of return on a 10,000 call option would be:
|
a. 16.20% |
b. 18.19% |
c. 15.17% |
d. 16.78% |
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