The price of a stock is currently $37. Over the next half year, the price is anticipated to rise to $42 or decline to $36. The upside has a 60% probability of occurring. The risk-free interest rate is 5% p.a.. What is the price of a six month call option with an exercise price of $38?
The price of a stock is currently $37. Over the next half year, the price is anticipated to rise to $42 or decline to $36. The upside has a 60% probability of occurring. The risk-free interest rate is 5% p.a.. What is the price of a six month call option with an exercise price of $38?
Chapter20: Financing With Derivatives
Section20.A: The Black-scholes Option Pricing Model
Problem 1P
Question
The price of a stock is currently $37. | ||||
Over the next half year, the price is anticipated to rise to $42 or decline to $36. | ||||
The upside has a 60% probability of occurring. The risk-free interest rate is 5% p.a.. | ||||
What is the price of a six month call option with an exercise price of $38? |
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT