■ Yegi’s Fine Phones has a current stock price of $30. You need to findthe value of a call option with a strike price of $32 that expires in3 months. Use the binomial model with one period until expiration(i.e., t = 0.25 and n= 1). The factor for an increase in stock price isu = 1.15; the factor for a downward movement is d = 0.85. Whatare the possible stock prices at expiration? ($34.50 or $25.50)What are the option’s possible payoffs at expiration? ($2.50 or$0) What are pu and pd? (0.5422 and 0.4429) What is the currentvalue of the option (assume each month is 1/12 of a year)? ($1.36)
■ Yegi’s Fine Phones has a current stock price of $30. You need to findthe value of a call option with a strike price of $32 that expires in3 months. Use the binomial model with one period until expiration(i.e., t = 0.25 and n= 1). The factor for an increase in stock price isu = 1.15; the factor for a downward movement is d = 0.85. Whatare the possible stock prices at expiration? ($34.50 or $25.50)What are the option’s possible payoffs at expiration? ($2.50 or$0) What are pu and pd? (0.5422 and 0.4429) What is the currentvalue of the option (assume each month is 1/12 of a year)? ($1.36)
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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■ Yegi’s Fine Phones has a current stock price of $30. You need to find
the value of a call option with a strike price of $32 that expires in
3 months. Use the binomial model with one period until expiration
(i.e., t = 0.25 and n= 1). The factor for an increase in stock price is
u = 1.15; the factor for a downward movement is d = 0.85. What
are the possible stock prices at expiration? ($34.50 or $25.50)
What are the option’s possible payoffs at expiration? ($2.50 or
$0) What are pu and pd? (0.5422 and 0.4429) What is the current
value of the option (assume each month is 1/12 of a year)? ($1.36)
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