You are attempting to value a put option with an exercise price of $108and one year to expiration. The underlying stock pays no dividends, itscurrent price is $108, and you believe it has a 50% chance of increasingto $122 and a 50% chance of decreasing to $94. The risk-free rate ofinterest is 11%. Calculate the value of a put option with exercise price$108.Note: Do not round intermediate calculations. Round your answer to2 decimal places.× Answer is complete but not entirely correct.Value of a put option$13.56 ×

Step 1:Calculate the option value at expiration based upon your assumption of a 50% chance of…

Answered: You are attempting to value a put…

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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Title On August 23, 1994, the 5-day total returns for equal investments in foreign socks, U.S. stocks,... Description On August 23, 1994, the 5-day total returns for equal investments in foreign socks, U.S. stocks, gold, money market funds, and treasury bonds aver-aged 0.086% (Business Week, September 5, 1994). If the respective returns for foreign stocks, U.S. stocks, gold, and money market funds were +0.70%, —0.11%, +1.34%, and +0.05%, what was the return for treasury bonds?
A put option with an exercise price of $45 is currently selling for $5. The delta for the put is -0.4, and the stock is currently selling for $50. What is the elasticity of the put?
Please show step by step work (not in excel): What is the call option premium given the following information? What would happen to the call price if the company initiated and paid a dividend before the expiration of the option? What would happen to the call premium if the expiration of the option expanded beyond the current 9 months? Stock price $36.00 Strike price $30.00 Volatility 16% Dividend Yield 0.00 Time 0.75 Riskfree Rate 2.70%
At time t=0 Mr. Anderson sets up a riskless portfolio by taking a position in an option and in the underlying asset. Explain what Mr. Anderson needs to do at time t=1 to keep his portfolio risk neutral and why. A stock price is currently $100 and at the end of four months it will be ST . A derivative written on this stock pays off expST1/3 in four months. Given that u = 1.15, d = 0.87, and that the risk-free interest rate is 10% p.a. (continuously compounded), answer the following questions using a one-period binomial model (show all the details of your calculations and display the results with four decimal places): Calculate the value of ∆ Calculate the current value of the derivative.
Suppose there is also a 1-year European put option on the same stock as in Question 3 with exercise price $30. The current stock price is also $25 and the stock price, in 1 year, will be either $35 (up by 40%) or $20 (down by 20%). The interest rate is 8%. This stock does not pay dividend. What is the value of the put option? Please use risk neutral probability method and assume discrete discounting. (2) What is put-call parity in option pricing? What needs to be true in order for put-call parity to hold?
You are attempting to value a put option with an exercise price of $108 and one year to expiration. The underlying stock pays no dividends, its current price is $108, and you believe it has a 50% chance of increasing to $130 and a 50% chance of decreasing to $86. The risk-free rate of interest is 10%. Calculate the value of a put option with exercise price $108. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. X Answer is complete but not entirely correct. Value of a put option $ 107.50
A stock is currently priced at $52 and will move up by a factor of 1.14 or down by a factor of .90 each period over each of the next two periods. The risk-free rate of interest is 3 percent. What is the value of a put option with a strike price of $58? (Do not round intermediate calculations. Round your answer to 2 decimal places.) X Answer is complete but not entirely correct. Value of a put option $ 4.57
Topic: Option Pricing When computing, please do not round off. Only final answers must be rounded off to two decimal places Based on the Black-Scholes model, the price of a put option should be P2,800. If the underlying asset has a strike price of P60,000 and a market price of P58,500, how much is the extrinsic value of the option?

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