Question 5 Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price is $29, the risk-free interest rate is 5% per annum, the volatility is 25% per annum, and the time to maturity is four months. a. What is the price of the option if it is a European call? b. What is the price of the option if it is a European put? c. Verify that put-call parity holds. ●

Question 5 Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price is $29, the risk-free interest rate is 5% per annum, the volatility is 25% per annum, and the time to maturity is four months. a. What is the price of the option if it is a European call? b. What is the price of the option if it is a European put? c. Verify that put-call parity holds. ●

Fundamentals of Financial Management (MindTap Course List)

14th Edition

ISBN:9781285867977

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter18: Derivatives And Risk Management

Section18.A: Valuation Of Put Options

Problem 2P

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Question 5 Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price is $29, the risk-free interest rate is 5% per annum, the volatility is 25% per annum, and the time to maturity is four months. What is the price of the option if it is a European call? b. What is the price of the option if it is a European put? c. Verify that put-call parity holds. a.
Question 4 Which of the following are always positively related to the price of a European call option on a stock (circle three) NOTE: "All or Nothing" Scoring Question options: The stock price The strike price The time to expiration The volatility The risk-free rate The magnitude of dividends anticipated during the life of the option Question 8 Six-month call options with strike prices of $35 and $40 cost $6 and $4, respectively. What is the maximum potential gain when a bear spread is created from the calls? Question options: $2.00 $2.50 $3.00 None of the above Question 11 Six-month call options with strike prices of $35 and $40 cost $6 and $4, respectively. What is the maximum potential loss when a bear spread is created from the calls? Question options: $2.00 $2.50 $3.00 None of the above
Question 2. 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?
3 Using Black-Scholes find the price of a European call option on a non-dividend paying stock when the stock price is $69, the strike price is 70, the risk-free interest rate is 12% per annum, the volatility is 30% per annum, and the time to maturity is three months? What is the value of a put using theses parameters (use put-call parity)? What happens to the price of the call if volatility is 10% and 50%? Show the prices at these volatilites.
Q.3 Determine the risk-neutral value for a European put option (for a FLB (First Local Bank) share) that expires in eight months. The strike price is R500 and the current price is R650. The interest rate is 11%, and the volatility of the security is 0.026.
Question 3 - (2 Consider a European call option on a non-dividend-paying stock where the stock price is $33, the strike price is $36, the risk-free rate is 6% per annum, the volatility is 25% per annum and the time to maturity is 6 months. (a) Calculate u and d for a one-step binomial tree. (b) Value the option using a non arbitrage argument. (c) Assume that the option is a put instead of a call. Value the option using the risk neutral approach. (d) Verify that the European call and European put prices found in (b) and (c) satisfy the put-call parity.
Question 1 • Springtime Insurance Brokers Ltd. (SIBL) stock is currently selling for $42. A put option on the stock with a value of $3 has an exercise price of $40 and 6 months until expiration. To prevent arbitrage opportunities, what should be the value of a call option with the same strike price and expiration date? Assume that the options are European and that the effective annual risk-free rate is 6%.
Q 2. A European call option on shares has 3 months to expiry. The exercise price of the option is $2.50, and the current price of the share is $3. The standard deviation of the share is 20% and the risk-free rate is 5%. Required: Calculate the value of the call option per share using the Black-Scholes formula.
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.
Q.3Determine the risk-neutral value for a European put option (for a FLB (First Local Bank) share) that expires in eight months. The strike price is R500 and the current price is R650. The interest rate is 11%, and the volatility of the security is 0.026.
Question 5: Suppose that a March call option to buy a share for $50 costs $2.50 and is held until March. Under what circumstances will the holder of the option make a profit? Under what circumstances will the option be exercised? Draw a diagram showing how the profit on a long position in the option depends on the stock price at the maturity of the option.Plz explain it
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