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Question 18 Compute the probability of the up-step: q = (S-Sd) / (Su-Sd) Enter as decimal Question 19 With the stock equal to 55 one week from now, the call value is Question 20 With the stock equal to 45 one week from now, the call value is

Question 18 Compute the probability of the up-step: q = (S-Sd) / (Su-Sd) Enter as decimal Question 19 With the stock equal to 55 one week from now, the call value is Question 20 With the stock equal to 45 one week from now, the call value is

Essentials Of Investments
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
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Applies to all attachted. 

Consider a simple one-step binomial tree below, the numbers are stock prices. Today, the stock is at 50 and can go up to 55 and down to 45 over the next week, the expiry date. We are pricing a call struck at 49.  Answer the next several questions related to the situation.

                           55

50

                          45

Question 18 Compute the probability of the up-step: q = (S-Sd) / (Su - Sd) Enter as decimal Question 19 With the stock equal to 55 one week from now, the call value is Question 20 With the stock equal to 45 one week from now, the call value is Question 21 With the stock equal to 50 today, Question 22 value is Today, the delta (hedge ratio) is A = (Cu-Cd)/(Su - Sd) Question 23 A hedger who has just sold calls on 100 shares would buy shares
Transcribed Image Text:Question 18 Compute the probability of the up-step: q = (S-Sd) / (Su - Sd) Enter as decimal Question 19 With the stock equal to 55 one week from now, the call value is Question 20 With the stock equal to 45 one week from now, the call value is Question 21 With the stock equal to 50 today, Question 22 value is Today, the delta (hedge ratio) is A = (Cu-Cd)/(Su - Sd) Question 23 A hedger who has just sold calls on 100 shares would buy shares
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