Please correct answer and don't use hend raiting and step by step solutions TitleBP plc shares are currently selling for £4.29 per share. A put option with an exercise price of...DescriptionBP plc shares are currently selling for £4.29 per share. A put option with an exercise price of £4.40sells for £0.25 and expires in 3 months. If the risk-free rate of interest is 2.6 per cent per year,compounded continuously, what is the price of a call option with the same exercise price?

To find the price of a call option with the same exercise price, we can use put-call parity, which…

Answered: Title BP plc shares are currently…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section20.A: The Black-scholes Option Pricing Model

Problem 1P

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Suppose XYZ stock pays no dividends and has a current price of $50. The forward price for delivery in 1 year is $55. Suppose the 1-year eective annual interest rate is 10%. (a) Graph the payo and prot diagrams for a forward contract on XYZ stock with a forward price of $55. (b) Is there any advantage to investing in the stock or the forward contract? Why? (c) Suppose XYZ paid a dividend of $2 per year and everything else stayed the same. Now is there any advantage to investing in the stock or the forward contract? Why?
Assume a stock has a value of $100. The stock is expected to pay a dividend of $2 per share at year-end. An at-the-money European-style put option with one-year maturity sells for $7. If the annual interest rate is 5%, what must be the price of a 1-year at-the-money European call option on the stock?
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 м 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. =
The share price of your favourite company is currently traded at a price of £80 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, 0.15 and volatility o = 0.24 drift µ . You decide to buy a European call option with a strike price of £84 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. =
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.
A 4-month European call option on a stock (with dividend) is currently selling for RM5. The price of the stock is RM64 and the strike price is RM60. The risk-free interest rate is 12% p.a. A dividend of RM0.80 is expected one month from now. Is there any arbitrage opportunities? Show your working. How much is the profit/loss if at maturity the price of the stock is higher than the strike price? How much is the profit/loss if at maturity the price of the stock is lower than the strike price?
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.
XYZ Corporation will pay a $2 per share dividend in two months. Its stock price currently is $80 per share. A European call option on XYZ has an exercise price of $75 and 3-month time to expiration. The risk-free interest rate is 0.95% per month, and the stock's volatility (standard deviation) - 18 % per month. Find the Black-Scholes value of the option. (Hint: Try defining one "period" as a month, rather than as a year, and think about the net-of-dividend value of each share.) Note: Round your answer to 2 decimal places. Black-Scholes value of the option
1. A European call option and put option on a stock both have a strike price of $20 and an expiration date in three months. Both sell for $3. The risk-free interest rate is 10% per annum, the current stock price is $19 and a $1 dividend is expected in one month. Identify the arbitrage opportunity to the trader.
Consider a long forward contract on Amps Inc stock with a remaining maturity of 8 months. Amps Inc has announced that it will pay $2 dividend per share after 3 months. The risk-free rate of interest (with continuous compounding) is 5 percent per year, the current stock price is $40, and the delivery price when the contract is in place is $42. What is the current no-arbitrage forward price of this stock? 35.32 42.67 39.31 42.44 33.89 32.45
Mansukh
A European put option on a non-dividend paying stock has strike price of $40 and time to maturity 9 months. Assume the risk-free interest rate is 5% per annum, the volatility is 20% per annum and the current stock price is $38. Using the Black-Scholes model, calculate the price of the European put option.

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