Please answer question 4-d 4. Answer all parts of this question.(a) A trader observes an American option and a European option with thesamestrike price, expiration, and underlying stock. He believes that theEuropean option will have a higher premium than the American option.Critique his belief that the European option will have a higher premium.(b) A trader is asked to value a 1-year European call option for FacebookLtd.common stock, which last traded at 43 USD. He has collected the followinginformation: call and put option exercise price 45 USD, 1-year put option price4 USD, 1-year Treasury bill rate 5.50% continuously compounded. Calculatethe European call option value using put-call parity.(c) State the effect, if any, of each of the following three variables on the valueof acall option. (No calculations required.) į. An increase in the short-term interestrate. ii. An increase in stock price volatility. iii. A decrease in time to optionexpiration.(d) Price the European call having strike 60 GBP. Use the two-periodsbinomialmodel with u = 1.1, d = 0.9 and At = 1. Assume that the risk free rate is5%, and the current price of the underlying asset is 50 GBP.

A European call option is a financial contract between a buyer and a seller, which gives the buyer…

Price the European call having strike 60 GBP. Use the two-periods binomialmodel with u = 1.1, d = 0.9 and At = 1. Assume that the risk free rate is 5%, and the current price of the underlying asset is 50 GBP.

Price the European call having strike 60 GBP. Use the two-periods binomialmodel with u = 1.1, d = 0.9 and At = 1. Assume that the risk free rate is 5%, and the current price of the underlying asset is 50 GBP.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter5: Financial Options

Section: Chapter Questions

Problem 5MC: In 1973, Fischer Black and Myron Scholes developed the Black-Scholes option pricing model...

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Please answer question 4-d

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Please answer question 4-c
An investor buys a European call option at a price of 7.6 yuan. The stock price is 52 yuan and the strike price is 55 yuan. Under what circumstances will the investor make a profit ? Under what circumstances will the option be executed ? Draw a diagram of the relationship between investor profitability and stock price at maturity.
Please advise
I need the answer as soon as possible
Problem 4c: State whether the following statements are true or false. In each case, provide a brief explanation. c. An investor would like to purchase a European call option on an underlying stock index with a strike price of 210 and a time to maturity of 3 months, but this option is not actively traded. However, two otherwise identical call options are traded with strike prices of 200 and 220 respectively, hence the investor can replicate a call with a strike price of 210 by holding a static position in the two traded calls.
Please explain step by step
Please help answer this question.
Assume that the current price of a stock is S0 = 100. An investor holds long one European put option with a strike price of K = 100 and short one European call option with strike K = 105. Both options mature at the same time T. Assume that the stock price at maturity is ST = 102. What is the payoff to the investor? Select one: a. 2 b. 1 c. 0 d. -1 e. -2 f. None of the above
4. Draw the payoff function of a trader who writes (shorts) a European put option on one share of a stock at an option price of $10, with the strike price of $90. What would be his/her payoff from this position if the spot price of the share turns out to be $95 at the maturity of the option?
Explain it in details, thanks.
*NoChatGPT answers please 6A) What is the price of a European call option on a non-dividend-paying stock when the stock price is $52, the strike price is $50, the risk-free interest rate is 12% per annum, the volatility is 30% per annum, and the time to maturity is 3 months? 6B) What is the assumption of the Black–Scholes–Merton stock option pricing model about the probability distribution of the stock price in one year? What is the assumption about the probability distribution of the continuously compounded rate of return on the stock during the year?
22) Consider an investor who owns stock XYZ. The stock is currently trading at $120. The investor worries that the outlooks for the market and the stock are not 5 favorable. The investor decides to protect his potential losses by using derivatives. Which one is a correct course of action given the investor's concerns? 123) Assume the same investor decided to purchase a European call option on stock ABC. Further assume that the current price of the stock is $130. The investor paid $10 for the call with the strike price at $155. (A)If the stock price goes up to $160, what is the payoff to the investor? (B) Further assumes that the investor also decided to sell a European put option on the same underlying with the same strike price of $155 and option cost of $10. What is the payoff to the investor when the stock price moves to $175? Which of the following combination of answers best capture the payoffs for situations escribed in A and B?