stock price will rise to $90 and a 40% chance it will fall to $75. The risk free bond gets 5%. • Price a call option with strike of $80. • Price a put option with strike of $80. • Does put-call parity hold? Show whether it does or does not. • What would the option prices be if the probabilities were 70% chance the stock price rises and 30% chance it falls?

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Q: 3. Suppose the current stock price is $50 and you believe that, one year from now, the stock will…

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Q: (15 pts) The current price of a stock is $50 and we assume it can be modeled by geometric Brownian…

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Q: If the risk-free rate is 3%, the market risk premium is 9%, and the beta of a given stock is 1.03.…

A: risk free rate = rf = 3% Market risk premium = mrp = 9% Beta = b = 1.03 Actual return = 15%

Q: The current price of a non-dividend-paying stock is $30. Over the next six months it is expected to…

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Q: equal

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Q: Required: The market price of a security is $56. Its expected rate of return is 12%. The risk-free…

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Q: Using the Black/Scholes Option Pricing Model, calculate the value of the call option given: S = 70;…

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Q: 4. Consider an exchange option. Suppose the initial prices (time 0) of the two s - S2 = 100 and a, =…

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Q: You buy a share of stock, write a one-year call option with X = $26, and buy a one-year put option…

A: Payoff on the portfolio is equal to Strike price of the stock

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.