The current stock price is $50. The stock price can go up by 10% or go down by 10% in each month for 3 months. The risk-free interest rate is 6%. What will be the price of 3- months American Put option using 3-Step Binominal option pricing model if the strike price of the option is $70? Note: American options can be exercised before maturity. Answer choices: a. $19.65 b. $14.65 c. $24.65 d. $50.00

The current stock price is $50. The stock price can go up by 10% or go down by 10% in each month for 3 months. The risk-free interest rate is 6%. What will be the price of 3- months American Put option using 3-Step Binominal option pricing model if the strike price of the option is $70? Note: American options can be exercised before maturity. Answer choices: a. $19.65 b. $14.65 c. $24.65 d. $50.00

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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A put option that expires in six months with an exercise price of $65 sells for $4.45. The stock is currently priced at $61, and the risk-free rate is 3.9 percent per year, compounded continuously. What is the price of a call option with the same exercise price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) X Answer is complete but not entirely correct. Call price $ 1.68 X
Consider a two year put options with strike Price sh. 52 on a stick whose current price is sh.50. suppose there is 2 times steps and each step is one year and in each times steps the price move up or down by 20%. Suppose the risk Free rate is 5% . Calculate value of put assuming; A) Europeans options B) American options
The price of Newgen Corp. stock will be either $94 or $103 at the end of the year. Call options are available with one year to expiration. T-bills currently yield 7.90%. (Do not leave any empty spaces; input a O wherever it is required. Omit "$" sign in your response.) a. Suppose the current price of Newgen stock is $104. What is the value of the call option if the exercise price is $94 per share? (Round the final answer to 2 decimal places.) Call option value b. Suppose the exercise price is $109 in part (a). What is the value of the call option now? Call option value
Basic information of an American put option: Remaining maturity: two month; risk-free rate: 5% (continuously compounded); the underlying current Price: 50; Annual Volatility: 20%; Final Price: 50. Try to construct a two-phase binary tree to price it
Use the Black–Scholes formula to value the following options:a. A call option written on a stock selling for $72 per share with a $72 exercise price. The stock's standard deviation is 6% per month. The option matures in three months. The risk-free interest rate is 1.50% per month. (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. A put option written on the same stock at the same time, with the same exercise price and expiration date. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Please do not use excel, show work step by step, thank you
a. Use the Black-Scholes formula to find the value of the following call option. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) i. Time to expiration 1 year. ii. Standard deviation 40% per year. iii. Exercise price $84. iv. Stock price $84. v. Interest rate 4% (effective annual yield). b. Now recalculate the value of this call option, but use the following parameter values. Each change should be considered independently. (Do not round intermediate calculations. Round your final answers to 2 decimal places.) i. Time to expiration 2 years. ii. Standard deviation 50% per year. iii. Exercise price $94. iv. Stock price $94. v. Interest rate 6%. c. In which case did increasing the value of the input not increase your calculation of option value? a. Call option value b-i. Call option value when time to expiration is 2 years. b-ii. Call option value when standard deviation is 50% per year. b-iii. Call option value when exercise price is $60. b-iv. b-v. C…
What is the appropriate risk-free rate on May 11, 2022 for an option that expires on Oct 20, 2022 if the T-bill with closest maturity is quoted as 3.65/3.44? a. What is the un-annualized discount rate? Round your answer to two decimals. b. What is the T-bill price? Round your answer to two decimals b . What is the approximate risk-free rate? % Round your answer to two decimals
You Consider a stock with a price of $50 that is expected to increase by 6% or decrease by 8% each month over the next two months. Having a risk-free rate at 3% per year with continuous compounding, calculate the value of a two-month European put option with a strike price of $55. Repeat your calculations for a two-month American put option with a strike price of $55. Show clearly all your calculations and results with the use of the relevant equations and graphs. Discuss your investment decision in each case separately.
What is the value of a put option if the underlying stock price is $47, the strike price is $40, the underlying stock volatility is 52 percent, and the risk-free rate is 5.5 percent? Assume the option has 150 days to expiration. (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 2 decimal places.) X Answer is complete but not entirely correct. Value of a put option $ 7.00
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The following information is given: Time to expiration 1 year. Standard deviation 40% per year. Exercise price $72. Stock price $72. Risk free rate 4% a year. Use the Black–Scholes formula to find the value of the calloption. What is the value of the put option with the same exercise price and time to expiration? What is the value of the call option if time to expiration is 3 years? What is the value of the call option if the standard deviation is 20%? What is the value of the call option if the exercise price is $90? What is the value of the call option if the current stock price is $50? What is the value of the call option if the risk-free rate is 8%?

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