Use Excel’s data table feature to construct a Two-Way Data Table to demonstrate the impact of the risk free rate of interest and the volatility on the price of this put option:
Use Excel’s data table feature to construct a Two-Way Data Table to demonstrate the impact of the risk free rate of interest and the volatility on the price of this put option:
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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4. A stock is selling today for $100. The stock has an annual volatility of 45 percent and the annual risk-free interest rate is 12 percent. A 1 year European put option with an exercise price of $90 is available to an investor
.a.Use Excel’s data table feature to construct a Two-Way Data Table to demonstrate the impact of the risk free rate of interest and the volatility on the price of this put option:
i. Risk Free Rates of 5%, 7%, 9%, 12%, 15% and 18%.
ii. Volatility of 35%, 45%, 55%, and 65%.
b. How is the put option price impacted by varying the risk free rate of interest?
c.How is the put option price impacted by varying the volatility?
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