uppose Carol's stock price is currently $20. If the standard deviation of the continuously compounded returns (σ) on a stock is 60 percent per year. The annual risk-free rate is 12%, compounded every 6 months. A. Using one-step binomial tree, what is the current value of a six-month call option with an exercise price of $25? B. Using two-step binomial tree, what is the current value of a one-year put option with an exercise price of $25?
uppose Carol's stock price is currently $20. If the standard deviation of the continuously compounded returns (σ) on a stock is 60 percent per year. The annual risk-free rate is 12%, compounded every 6 months. A. Using one-step binomial tree, what is the current value of a six-month call option with an exercise price of $25? B. Using two-step binomial tree, what is the current value of a one-year put option with an exercise price of $25?
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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Suppose Carol's stock price is currently $20. If the standard deviation of the continuously
compounded returns (σ) on a stock is 60 percent per year. The annual risk-free rate is 12%,
compounded every 6 months.
A. Using one-step binomial tree, what is the current value of a six-month call option with an
exercise price of $25?
B. Using two-step binomial tree, what is the current value of a one-year put option with an
exercise price of $25?
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