The current price of a non-dividend paying stock is $30. Use a two-step tree to value a European call option on the stock with a strike price of $32 that expires in 6 months. Each step is 3 months, the risk free rate is 8% per year with continuous compounding. What is the option price when u = 1.1 and d = 0.9? $1.29 O $1.69 $1.49 None of these $1.89

The current price of a non-dividend paying stock is $30. Use a two-step tree to value a European call option on the stock with a strike price of $32 that expires in 6 months. Each step is 3 months, the risk free rate is 8% per year with continuous compounding. What is the option price when u = 1.1 and d = 0.9? $1.29 O $1.69 $1.49 None of these $1.89

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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V4. Using a two-step binomial tree, calculate the value of an American call option where the underlying stock pays a dividend of $1 per share just before the option’s expiration. The stock is trading at $22, the strike is $20, the risk-free rate is 4%. The option is outstanding for another two years (each step in the binomial tree is one year long). The stock is expected to rise or fall 10% in each one-year period prior to expiry. Can you please explain/show in Excel including formulas.
A stock price is currently $51. It is assumed that at the end of six months it will be either $30 or $74. The risk-free interest rate is 1.3% per annum with continuous compounding. The stock doesn't pay dividends. One-step binomial tree is used to value options. What is the value of a six-month European call option with a strike price of $51? Round your final result to the nearest cents and input one number only, without units or percentage sign [%], using the dot [.] to separate decimals. Your Answer: Answer
Consider a call option on one share of BP with a strike price of $70 and exercise time 1 quarter (3 months). Suppose the current stock price for BP is S(0) = $65 per share. Suppose further that A(0) = $100, A(1) = $102 and two possible prices for S(1) are S $74 with probability 0.5, S(1) = $66 with probability 0.5. Evaluate the expected returns E(Ks) and E(Kc) for the stock and the option.
The stock price of Copious Corp. is currently $30. The stock price 1 year(s) from now will be either $34 or $27. The annual risk-free rate is 1.4%. Using the binomial model, what is the value of a call option with an exercise price of $30 and an expiration date 1 year(s) from now?
What is the value of d, of a European call option on a non-dividend-paying stock when the stock price is $60, the strike price is $59, the risk-free interest rate is 5% per annum the volatility (Standard Deviation) is 30% per annum, and the time to maturity is three months? c=SN(d,)-Ke-N(₂) where and O√T OA02704 OB0.2167 *√T OC.0.3561 OD.0.1204
Suppose the following for European options: Stock price $94 3-month call options with strike price $97 3-month put option with strike price $98 1-year risk-free rate is 3%. The put option is trading ot $5 and there is an identical call option that is trading for $4. The arbitrage gain that can be made is equal to: O a. $2.00 b. $0.27 Oc. $3.00 O d. $1.27 O e $227
2. What are the prices of a call option and a put option with the following characteristics? Stock price = $74Exercise price = $72Risk-free rate = 2.7% per year, compounded continuouslyMaturity = 4 monthsStandard deviation = 52% per year 3. Draw the payoff picture at expiration for a long position in a call option that has a premium of $1.25 and a strike price of $30. 4. Draw the payoff picture for a short position in the call option given in Problem 2.5. Draw the payoff picture at expiration for a long position in a put option that has a premium of $3.50 and a strike price of $80. 6. Draw the payoff picture for a short position in the put option given in Problem 4.please let me have it by mornin. Thank you.
A two-year European call option is written on a stock whose current price is $20. The stock will pay a dividend of $1 three months from now and another $1 one and half years from now. The strike price is $18, and the riskfree interest rate is 5%. Then the tightest lower bound for the call option value is, 6. $1.8976 $1.535 $1.194 a. b. с. d. $1.7976. Six-month call options with strike prices of $25 and $30 cost $4 and $3 respectively. Then the maximum possible gain and loss from a bear spread 7. formed using the two calls are respectively $10 and infinity $10 and $10 $1 and $4 $4 and $1 $10 and $5 а. b. c. d. е. Twelve-month European put options with strike prices of $35, $30, and $25 cost $7, $3.5, and $2 respectively. Then the maximum possible gain and loss from a butterfly spread formed using the three puts are respectively 8. a. $4.5 and infinity b. $4.5 and $0.5 $0.5 and $4.5 $3 and $0.5 $10 and $4.5 c. d. е. 9. A three-month call with a strike price of $20 costs $1. A three-month…
A European call option and put option on a stock both have a strike price of $20 and an expiration date in nine months. Both sell for $3. The risk-free interest rate is 15% per annum, the current stock price is $19.75, and a $1 dividend is expected in one month. Identify the arbitrage opportunity open to a trader.
The market price of JS stock is currently $30. It is known that at the end of three months it will be either $33 or $27. The risk-free interest rate is 8% per annum with continuous compounding. (a) Use a one-step binomial tree to calculate the value of a three-month European put option on the JS stock with a strike price of $31? Use no-arbitrage arguments (you need to show how to set up the riskless portfolio). (b) Use the same one-step binomial tree and your results from (a) to determine the price of a three-month American put option on the JS stock with a strike price of $31
The share price of your favourite company is currently traded at a price of £60 and interest is compounded continuously at rate 3.7% per year. Assume that the share evolves according to a discrete time LogNormal process with time measured in years, drift µ = 0.15 and volatility o = 0.24. You decide to buy a European call option with a strike price of £63 and an expiration date of two years from now. What is the no-arbitrage price for this option? State your answer to the nearest pence. Do not enter the pound sign.
Suppose that an American put option with a strike price of $70.0 and maturity of 4.0 months costs $13.2. The underlying stock price equals 55. The continuously compounded risk-free rate is 8.5 percent per year. What is the potential arbitrage profit from buying a put option on one share of stock? 1.9783 no arbitrage profit available 3.8117 4.2693 1.80

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