= £3000, μ = 0.02, and ² A share follows a discrete-time log-normal process with initial price S = 0.015, where the time-step is 1 year. Find the probability that a European call on the share with strike price £3300 and expiry date 4 years will be exercised. State your answer as a decimal to three significant figures.

= £3000, μ = 0.02, and ² A share follows a discrete-time log-normal process with initial price S = 0.015, where the time-step is 1 year. Find the probability that a European call on the share with strike price £3300 and expiry date 4 years will be exercised. State your answer as a decimal to three significant figures.

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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uppose a U.S. investor wishes to invest in a British firm currently selling for £33 per share. The investor has $66,000 to invest, and the current exchange rate is $2/£. Required:a. How many shares can the investor purchase? (Round your answer to the nearest whole number.) b. Fill in the table below for dollar-denominated rates of return after one year in each of the nine scenarios (three possible share prices denominated in pounds times three possible exchange rates). (Round your percentage answers to 2 decimal places. Negative amounts should be indicated by a minus sign.)
Assume that the strike price is $100. The time to maturity T is 2 months. Risk free rate is 0.1, U=1.21, D=0.82 price the European and American binary calls if the spot price differs from the strike price by 0.01 using the 2 step binomial tree. Use monthly compounding.
The price of a stock, which pays no dividends, is $30 and the strike price of a three-year European call option on the stock is $27. The risk-free rate is 8% (continuously compounded). Which of the following is a precise lower bound for the option such that there are arbitrage opportunities if the price is below the lower bound and no arbitrage opportunities if it is above the lower bound? Round your answer to 2 decimal places. Question 12Answer a. $8.76 b. $8.42 c. $8.57 d. $8.70
Suppose a U.S. investor wishes to invest in a British firm currently selling for £40 per share. The investor has $10,000 to invest, and the current exchange rate is $2/£. a. How many shares can the investor purchase? Number of shares = b. Fill in the table below for rates of return after one year in each of the nine scenarios (three possible prices per share in pounds times three possible exchange rates). (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.) Price per Share (£) Pound-Denominated Return (%) Dollar-Denominated Return (%)for Year-End Exchange Rate $1.80/£ $2/£ $2.20/£ £35 % % % % % % £40 % % % % % % £45 % % % % % %
Consider a two - period binomial model, where each period is 6 months. Assume the stock price is $75.00, \sigma 0.35, and r = 0.05. An American call option with a strike price of $80 would be exercised early at what dividend yield? () (A) 5.0% (B) 7.0 % (C) 9.0% (D) Never exercise early
Consider a stock in two periods (two years). The stock price goes up by 30% or down by 10%in each period. Current stock price is $100. There is a European put option on the stock withexercise price $110 and time to maturity of two years. The interest rate in each period is 6%. Inthe template, Date 0 denotes today, Date 1 denotes the end of year 1 and Date 2 denotes the endof year 2. Use the two-period binomial tree model and discrete discounting to find the put optionprice on Date 0.
A share is currently priced at £50. After one time period the share price will either increase to £70 or decrease to £40. Assume the interest rate is 4% per time period. Find the no-arbitrage price of a European derivative on the share which has payoff £90 if the share price goes up and £110 if the share price goes down. State your answer to the nearest pence. Do not enter the pound sign.
= 110 and A 2 year European cash binary call option with barrier level K cash notional H = $1,000,000.0 is traded at $326,455.25. The current price of the underlying stock is 100. The risk free interest rate is 5% ( continuous compounding). What is the fair value of a European cash binary put option of the same maturity and barrier level? (round numerical results to 2 decimal places)
Suppose that a stock is currently trading at £ 38, and that the current prices for European call and put options on this stock with maturity T 10 years and identical strike price K are equal to £30 and £35, respectively. Assuming that interest is compounded annually at rate 4%, determine the strike price to the nearest pence. Do not type in the pound sign. =
(35) (P-C Parity Arbitrage) A European Call price is C= $ 3.50, on a ZERO dividend. A similar Put price is P= $ 2.50. The stock price S= $ 51 , strike price X= S 50 , T= 1 year, and R = 2%. (a) Determine what the CALL Price SHOULD be. (b) How much should your arbitrage profit be? (c) Focusing on Real vs. Synthetic Call, specify ALL time 0 trade details. (d) At expiration in 1 year at T, show the ending details { both if S is HIGH or LOW }.
A company’s stock currently sells for $81.16. A one-year European put option on that stock with strike price of $85 sells for $16.24, and the risk free interest rate is 1.6%. The market expects the company to pay dividends during that period, and the market consensus is that present value of those dividends is $5.26. The price of a one-year European call option on that stock with strike price of $85 is $_________. (Note i: answer must be accurate to the nearest cent). (Note ii. Use annual compounding NOT exponential compounding for the purpose of this question).
Consider a two-period binomial model in which a non-dividend-paying stock currently trades at £35. Over each of the next two six-month periods, the share price is expected to go up by 12% or down by 9%. The risk-free interest rate is 6% per annum with continuous compounding. Calculate the value of a one-year European put option with a strike price of £36, using a two-period binomial tree method.

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