suppose the current share price of dimension stock is $46. one year from now, this this...

suppose the current share price of dimension stock is $46. one year from now, this this stock will sell for either $38 or $52 a share. T-bills currently yield 3.3 percent. what is the per share value of dimension call option if the exercise is $40 per share and the expiration is one year from now?

Solutions

Expert Solution

jeff jeffy answered 2 months ago

Next > < Previous

Related Solutions

The current price of one share of a certain stock is 100. The price of a...

The current price of one share of a certain stock is 100. The price of a one-year call option on the stock with a strike price of 105 is 10. The risk-free interest rate is 5.884% and the stock’s dividend yield is 2.02% Mr. John would like to create a synthetic long put option on the stock with a strike price of 105 and one year to maturity, using: Stock Call option Cash Determine the amount of cash and the...

Eagletron's current stock price is $10. Suppose that over the current year, the stock price will...

Eagletron's current stock price is $10. Suppose that over the current year, the stock price will either increase by 95% or decrease by 45%. Also, the risk-free rate is 25 %25% (EAR). a. What is the value today of a one-year at-the-money European put option on Eagletron stock? b. What is the value today of a one-year European put option on Eagletron stock with a strike price of $ 19.50$19.50? c. Suppose the put options in parts (a) and (b)...

Suppose the current stock price is $120 and the stock price in a year can be...

Suppose the current stock price is $120 and the stock price in a year can be either $150 or $100. The risk-free rate is 2% per year, compounded annually. Compute the price of a European put option that expires in a year. The strike price is K=$130 (Hint: This is a put option case, not a call option. Be careful when you compute the cash-flow at expiration date. All other calculations should be the same as call option case.)

Suppose the current stock price (P0) is US$45. A one year call option on the stock...

Suppose the current stock price (P0) is US$45. A one year call option on the stock with an exercise price € of US$35. A call option was brought which will expire in 6 months. The standard deviation of the stock price returns is 20%. The risk-free rate of return is 4% per annum. Use the above data to calculate the price of the call option using the black and Scholes model.

The current stock price of Johnson & Johnson is $46, and the stock does not pay...

The current stock price of Johnson & Johnson is $46, and the stock does not pay dividends. The instantaneous risk-free rate of return is 6%. The instantaneous standard deviation of J&J's stock is 40%. You want to purchase a put option on this stock with an exercise price of $37 and an expiration date 45 days from now. Using Black-Scholes, the put option should be worth ______ today. .06 .13 9.05 9.41

The stock price of Comet Inc. is currently $30. The stock price a year from now...

The stock price of Comet Inc. is currently $30. The stock price a year from now will be either $50 or $10 with equal probabilities. The interest rate at which investors can borrow is 5%. Using the binomial option pricing model (OPM), the value of a call option with an exercise price of $40 and an expiration date one year from now should be worth what?

The current price of stock XYZ is 100. In one year, the stock price will either...

The current price of stock XYZ is 100. In one year, the stock price will either be 120 or 80. The annually compounded risk-free interest rate is 10%. i. Calculate the no-arbitrage price of an at-the-money European put option on XYZ expiring in one year. ii. Suppose that an equivalent call option on XYZ is also trading in the market at a price of 10. Determine if there is a mis-pricing. If there is a mis-pricing, demonstrate how you would...

Eagletron's current stock price is $ 10 $10. Suppose that over the current year, the stock...

Eagletron's current stock price is $ 10 $10. Suppose that over the current year, the stock price will either increase by 95 % 95% or decrease by 57 % 57%. Also, the risk-free rate is 25 % 25% (EAR). a. What is the value today of a one-year at-the-money European put option on Eagletron stock? b. What is the value today of a one-year European put option on Eagletron stock with a strike price of $ 19.50 $19.50? c. Suppose...

You hold one share of IBM stock. The current stock price is $56. You are worried...

You hold one share of IBM stock. The current stock price is $56. You are worried that the stock price may decline. Your objective is to get at least $50 from the stock at the end of one year. Assume the volatility of IBM stock (sigma) is 30% and the risk-free rate is 8%. (i) How will you hedge using put option on IBM stock to make sure that you receive at least $50 at the end of the year?...

The current price of MB Industries stock is $20 per share. In the next year the...

The current price of MB Industries stock is $20 per share. In the next year the stock price will either go up to $24 per share or go down to $16 per share. MB pays no dividends. The one year risk-free rate is 5 percent and will remain constant. Using the one-step binomial pricing model, what is the price of a one-year CALL option on MB stock with a strike price of $20 (out to two decimal places)?

Subjects