kncesThe common shares of Twitter, Incorporated (TWTR) recently traded on the NYSE for $83 per share. You have employee stock optionsto purchase 1,000 TWTR shares for $88 per share. The options expire in three years. Assume that the annualized volatility of TWTRstock is 73 percent and that the interest rate is 3.4 percent. (Assume the options are European options that may only be exercised atthe maturity date.)a. Is this option a call or a put?CallO Putb. Using an option pricing calculator such as the one at erieri.com/blackscholes, estimate the value of your TWTR options.Note: Round your intermediate calculations to 2 decimal places and final answer to nearest whole dollar.Value of your TWTR options$83,000c. What is the estimated value of the options if their maturity is six months instead of three years?Note: Round your intermediate calculations to 2 decimal places and final answer to nearest whole dollar.Value of the optionsd. What is the estimated value of the options if their maturity is three years, but TWTR's volatility is 48 percent?Note: Round your intermediate calculations to 2 decimal places and final answer to nearest whole dollar.Value of the options

Stock price = $83Strike price = $88Interest rate = 3.4%Volatility = 73%

Answered: The common shares of Twitter,…

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

Problem 1PS

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Today is January 3. Your friend David has just bought a futures contract on a stock index, and the contract specifies one year to expiration. The current share price is $80, and the annually compounded interest rate is 10%. The stock will pay quarterly dividends of $2 during the next year, with dividends payments on the following dates: January 25 April 25 July 25 October 25 Assume that this is a non-leap year. c. What is the value of this futures contract on February 17 if the spot price turns out to be $90 on that day? d. Suppose that, instead of paying a quarterly dividend of $2, the stock index has an annual dividend yield of 10%. The continuously compounded interest rate is 10.52%. What is the price of the index futures on January 3? What is its value on February 17 when the index turns out to be $90?
What is the volatility rate? (Use percentage and at least, two decimal places)
Baghiben
Mr. John Barker, who is a market maker at CBOE, notices the following quotes in his hand-held device. The price of Macrohard stock is $66 per share. The European call option on the stock, with strike price $70 and expiration date in six months, is quoted for $4 per share. The European put option on the same stock, with the same strike price and the same expiration date, is quoted for $5.5 per share. A dividend of 50 cents is expected in two months. The interest rate is 5%. A. Is there an arbitrage opportunity to Mr. John Barker? How much is the arbitrage profit per share of the stock? B. Describe your arbitrage strategy in words and then use a table to show the cash flows of your arbitrage strategy.
A one-year long forward contract on a non-dividend-paying stock is entered into when the stock price is $36.2 and the risk-free rate of interest is 4% per annum (cont. comp). What is the value of the forward contract 8 months later if the price of the stock is $38.5 and the risk-free rate interest rate is still 4%. (round to the nearest 0.01)
OneChicago has just introduced a new single stock futures contract on the stock of Brandex, a company that currently pays no dividends. Each contract calls for delivery of 1,000 shares of stock in one year. The T-bill rate is 3% per year. Required: a. If Brandex stock now sells at $150 per share, what should the futures price be? (Round your answer to 2 decimal places.) b. Brandex stock now sells at $150 per share. If the Brandex stock price drops by 2.0%, what will be the new futures price and the change in the investor's margin account? (Input all amounts as positive values. Do not round intermediate calculations. Round your answers to 2 decimal places.) c. Brandex stock now sells at $150 per share. If the margin on the contract is $20,000, what is the percentage return on the investor's position, if the Brandex stock price drops by 2.0%? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)
Consider a stock in two periods (two years). The stock price goes up by 30% or down by 10%in each period. Current stock price is $100. There is a European put option on the stock withexercise price $110 and time to maturity of two years. The interest rate in each period is 6%. Inthe template, Date 0 denotes today, Date 1 denotes the end of year 1 and Date 2 denotes the endof year 2. Use the two-period binomial tree model and discrete discounting to find the put optionprice on Date 0.
There are call and put options on the shares in Nord AS with a redemption price of NOK 55 and one year to maturity. Today's share price is NOK 50. At the end of the year, the stock price will either be 30 kroner or 80 kroner. The risk-free interest rate of 3% per. year. a) What is the value of call options today? b) What is the value of the put options today if the put-buy parity holds? You have a portfolio of 2000 shares in Nord AS, but are starting to worry about that price. must fall. You therefore want to secure yourself by using options. c) Show how you can use call and put options to secure your position your. Explain.
Nikulbhai
Stock in Cheezy-Poofs Manufacturing is currently priced at $50 per share. A call option with a $50 strike and 90 days to maturity is quoted at $1.95. Compare the percentage gains and losses from a $97,500 investment in the stock versus the option in 90 days for stock prices of $40, $50, and $60. (Leave no cells blank - be certain to enter "0" and select "None" wherever required. Input all amounts as positive values. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Options % gain/loss Stock % gain/loss $40 $50 $60
Suppose that you, on 1st of January 2024, enter a long position in a 10-year forward contract on a non-dividend-paying stock. The stock price is $50, and the risk-free rate of interest is 5% per annum with yearly compounding (as per 1st of January 2024). Five years later, 1st of January 2029, the price of the stock is $60, and the risk-free interest rate is still 5%. ` A). On 1st of January 2029 what is the value to the party holding the short position in the contract entered into on 1st of January 2024? Explain.
Stock in Cheezy-Poofs Manufacturing is currently priced at $50 per share. A call option with a $50 strike and 90 days to maturity is quoted at $1.95. Compare the percentage gains and losses from a $97,500 investment in the stock versus the option in 90 days for stock prices of $40, $50, and $60. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Leave no cells blank - be certain to enter "0" and select "None" wherever required. Input all amounts as positive values.) $ 40 $ 50 $ 60 Options % gain/loss Stock % gain/loss

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