Use the table below to calculate the premium of the call. This is a 3-year option; the present value must account for T 3. Use (1+r) for discounting. 4. Use the table below to calculate the premium of the call. This is a 3-year option; the present value must account for T=3. Use (1+r) for discounting. SO r $50 6.00% u 2 0.5 3 F3 $59.55 37.3% Strike $80.00 CALL with strike of $80.00 Outcome Ups Downs Probability 1 3 0 5.20% probability 100.00% Cumulative Underlier price $400.00 Revenue Cost from Exercise? from sale purchase Payoff Yes $400.00 $80.00 $320.00 2 2 1 26.20% 94.80% $100.00 Yes $100.00 $80.00 $20.00 3 1 2 43.98% 68.59% $25.00 No $0.00 $0.00 $0.00 4 0 3 24.61% 24.61% $6.25 No $0.00 $0.00 $0.00 Expected value $47.02 $25.13 $21.89

Financial Accounting Intro Concepts Meth/Uses
14th Edition
ISBN:9781285595047
Author:Weil
Publisher:Weil
ChapterA: Appendix - Time Value Of Cash Flows: Compound Interest Concepts And Applications
Section: Chapter Questions
Problem 29E
Question
Use the table below to calculate the premium of the call. This is a 3-year option; the present value must account for
T 3. Use (1+r) for discounting.
4. Use the table below to calculate the premium of the call.
This is a 3-year option; the present value must account for T=3.
Use (1+r) for discounting.
SO
r
$50
6.00%
u
2
0.5
3
F3
$59.55
37.3%
Strike
$80.00
CALL with strike of $80.00
Outcome
Ups
Downs
Probability
1
3
0
5.20%
probability
100.00%
Cumulative Underlier
price
$400.00
Revenue
Cost from
Exercise?
from sale
purchase
Payoff
Yes
$400.00
$80.00
$320.00
2
2
1
26.20%
94.80%
$100.00
Yes
$100.00
$80.00
$20.00
3
1
2
43.98%
68.59%
$25.00
No
$0.00
$0.00
$0.00
4
0
3
24.61%
24.61%
$6.25
No
$0.00
$0.00
$0.00
Expected value
$47.02
$25.13
$21.89
Transcribed Image Text:Use the table below to calculate the premium of the call. This is a 3-year option; the present value must account for T 3. Use (1+r) for discounting. 4. Use the table below to calculate the premium of the call. This is a 3-year option; the present value must account for T=3. Use (1+r) for discounting. SO r $50 6.00% u 2 0.5 3 F3 $59.55 37.3% Strike $80.00 CALL with strike of $80.00 Outcome Ups Downs Probability 1 3 0 5.20% probability 100.00% Cumulative Underlier price $400.00 Revenue Cost from Exercise? from sale purchase Payoff Yes $400.00 $80.00 $320.00 2 2 1 26.20% 94.80% $100.00 Yes $100.00 $80.00 $20.00 3 1 2 43.98% 68.59% $25.00 No $0.00 $0.00 $0.00 4 0 3 24.61% 24.61% $6.25 No $0.00 $0.00 $0.00 Expected value $47.02 $25.13 $21.89
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