The current price of KD Industries stock is $22.4. In the next year the stock price will either go up by 26% or go down by 26%. KD pays no dividends. The one year risk-free rate is 5.6% and will remain constant. Based on Bionomial Pricing Model: a. For one-year European call option with exercise price $20: The replicating portfolio is (Either short or long) two decimals) shares of the stock and (Round your answer to two decimals) in risk-free bond. The price is $ (Either short or long) $ (Round your answer to two decimals). b. For one-year European put option with exercise price $20: The replicating portfolio is (Either short or long) (Round your answer to to two decimals) shares of the stock and (Round your answer to two decimals) in risk-free bond. The price is $ (Either short or long) $ (Round your answer to two decimals). (Round your answer
The current price of KD Industries stock is $22.4. In the next year the stock price will either go up by 26% or go down by 26%. KD pays no dividends. The one year risk-free rate is 5.6% and will remain constant. Based on Bionomial Pricing Model: a. For one-year European call option with exercise price $20: The replicating portfolio is (Either short or long) two decimals) shares of the stock and (Round your answer to two decimals) in risk-free bond. The price is $ (Either short or long) $ (Round your answer to two decimals). b. For one-year European put option with exercise price $20: The replicating portfolio is (Either short or long) (Round your answer to to two decimals) shares of the stock and (Round your answer to two decimals) in risk-free bond. The price is $ (Either short or long) $ (Round your answer to two decimals). (Round your answer
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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Transcribed Image Text:The current price of KD Industries stock is $22.4. In the next year the stock price will either go up
by 26% or go down by 26%. KD pays no dividends. The one year risk-free rate is 5.6% and will
remain constant. Based on Bionomial Pricing Model:
a. For one-year European call option with exercise price $20:
The replicating portfolio is
(Either short or long)
two decimals) shares of the stock and
(Round your answer to two decimals) in risk-free bond.
The price is $
(Either short or long) $
(Round your answer to two decimals).
b. For one-year European put option with exercise price $20:
The replicating portfolio is
(Either short or long)
to two decimals) shares of the stock and
(Round your answer to two decimals) in risk-free bond.
The price is $
(Round your answer to
(Either short or long) $
(Round your answer to two decimals).
(Round your answer
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