Financial Management: Theory & Practice
16th Edition
ISBN: 9781337909730
Author: Brigham
Publisher: Cengage
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Chapter 8, Problem 8SP
a)
Summary Introduction
To determine: Call option’s value according to Black-Scholes option pricing model.
b)
Summary Introduction
To determine: Put option’s value according to Black-Scholes option pricing model.
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You are evaluating a put option based on the following information:
P = Ke-H•N(-d,) – S-N(-d,)
Stock price, So
Exercise price, k
= RM 11
= RM 10
= 0.10
Maturity, T= 90 days = 0.25
Standard deviation, o = 0.5
Interest rate, r
Calculate the fair value of the put based on Black-Scholes pricing model. Cumulative
normal distribution table is provided at the back.
help please
please give me answer
Chapter 8 Solutions
Financial Management: Theory & Practice
Ch. 8 - Define each of the following terms:
Option; call...Ch. 8 - Why do options sell at prices higher than their...Ch. 8 - Describe the effect on a call option’s price that...Ch. 8 - A call option on the stock of Bedrock Boulders has...Ch. 8 - The exercise price on one of Flanagan Company’s...Ch. 8 - Assume that you have been given the following...Ch. 8 - The current price of a stock is $33, and the...Ch. 8 - Use the Black-Scholes model to find the price for...Ch. 8 - The current price of a stock is 20. In 1 year, the...Ch. 8 - The current price of a stock is $15. In 6 months,...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Assume that you have been given the following information on Purcell Corporations call options: According to the Black-Scholes option pricing model, what is the options value?arrow_forwardSuppose you have the following information concerning a particular options.Stock price, S = RM 21Exercise price, K = RM 20Interest rate, r = 0.08Maturity, T = 180 days = 0.5Standard deviation,= 0.5 a. What is correct of the call options using Black-Scholes model? * Look for N(d1) and N(d2) from the cumulative standard normal distribution table:arrow_forwardConsider the following portfolio. You write a put option with exercise price 90 and buy a put option on the same stock with the same expiration date with exercise price 95.a. Plot the value of the portfolio at the expiration date of the options.b. On the same graph, plot the profit of the portfolio. Which option must cost more?arrow_forward
- Three put options on a stock have the same expiration date and strike prices of $55, $60, and $65. The market prices are $3, $5, and $8, respectively. Explain how a butterfly spread can be created. Draw a profit diagram of your strategy to communicate the range of stock prices that the butterfly spread would lead to a loss. (When you draw a profit diagram, please, do consider option premia.arrow_forwardCan you please help with the question in the picture attached? The answer should be only one and I’m quite confused. Thank you!arrow_forwardII. Suppose you have the following information concerning a particular options.Stock price, S = RM 21Exercise price, K = RM 20Interest rate, r = 0.08Maturity, T = 180 days = 0.5Standard deviation, = 0.5 a. What is correct of the call options using Black-Scholes model? b. Compute the put options price using Black-Scholes model? c. Outline the appropriate arbitrage strategy and graphically prove that the arbitrage is riskless.Note: Use the call and put options prices you have computed in the previous question (a) and (b) above.b. Name the options/stock strategy used to proof the put-call parity. c. What would be the extent of your profit in (a) depend on?arrow_forward
- This is very simple question, pls solve it quicklyarrow_forwardIn 1973, Fischer Black and Myron Scholes developed the Black-Scholes option pricing model (OPM). What assumptions underlie the OPM? Write out the three equations that constitute the model. According to the OPM, what is the value of a call option with the following characteristics? Stock price = $27.00 Strike price = $25.00 Time to expiration = 6 months = 0.5 years Risk-free rate = 6.0% Stock return standard deviation = 0.49arrow_forwardA call option with X = $50 on a stock currently priced at S = $55 is selling for $10. Using a volatility estimate of σ = .30, you find that N(d1 ) = .6 and N(d2 ) = .5. The risk-free interest rate is zero. Is the implied volatility based on the option price more or less than .30? Explain.arrow_forward
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