Ringling Cycle’s stock price is now $20. You need to find the valueof a call option with a strike price of $22 that expires in 2 months.You want to use the binomial model with 2 periods (each period isa month). Your assistant has calculated that u = 1.1553, d = 0.8656,pu = 0.4838, and pd = 0.5095. Draw the binomial lattice for stockprices. What are the possible stock prices after 1 month? ($23.11or $17.31) After 2 months? ($26.69, $20, or $14.99) What are theoption’s possible payoffs at expiration? ($4.69, $0, or $0) Whatwill the option’s value be in 1 month if the stock goes up? ($2.27)What will the option’s value be in 1 month if the stock price goesdown? ($0) If each month is 1/12 of a year, what is the currentvalue of the option? ($1.10)
Ringling Cycle’s stock price is now $20. You need to find the value
of a call option with a strike price of $22 that expires in 2 months.
You want to use the binomial model with 2 periods (each period is
a month). Your assistant has calculated that u = 1.1553, d = 0.8656,
pu = 0.4838, and pd = 0.5095. Draw the binomial lattice for stock
prices. What are the possible stock prices after 1 month? ($23.11
or $17.31) After 2 months? ($26.69, $20, or $14.99) What are the
option’s possible payoffs at expiration? ($4.69, $0, or $0) What
will the option’s value be in 1 month if the stock goes up? ($2.27)
What will the option’s value be in 1 month if the stock price goes
down? ($0) If each month is 1/12 of a year, what is the current
value of the option? ($1.10)
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