Question

In: Finance

The current stock price of Johnson & Johnson is $62, and the stock does not pay...

The current stock price of Johnson & Johnson is $62, and the stock does not pay dividends. The instantaneous risk-free rate of return is 3%. The instantaneous standard deviation of J&J's stock is 35%. You want to purchase a put option on this stock with an exercise price of $53 and an expiration date 72 days from now. Using Black-Scholes, the put option should be worth ______ today.

Solutions

Expert Solution

Value of Put 0.6750

WORKINGS

Input Data
Stock Price now (P) 62
Exercise Price of Option (EX) 53
Number of periods to Exercise in years (t) 0.197260274
Compounded Risk-Free Interest Rate (rf) 3.00%
Standard Deviation (annualized s) 35.00%
Output Data
Present Value of Exercise Price (PV(EX)) 52.6873
s*t^.5 0.1554
d1 1.1248
d2 0.9693
Delta N(d1) Normal Cumulative Density Function 0.8697
Bank Loan N(d2)*PV(EX) 43.9309
Value of Call 9.9877
Value of Put 0.6750

Formulae used


Related Solutions

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 current stock price of Johnson & Johnson is $178, and the stock does not pay dividends. The instantaneous risk-
 The current stock price of Johnson & Johnson is $178, 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 30%. You want to purchase a put option on this stock with an exercise price of $171 and an expiration date 60 days from now. Assume 365 days in a year. With this information, you calculate the probability that a random draw from a standard normal distribution...
The current stock price of Alcoa is $115, and the stock does not pay dividends. The...
The current stock price of Alcoa is $115, and the stock does not pay dividends. The instantaneous risk-free rate of return is 6%. The instantaneous standard deviation of Alcoa's stock is 35%. You want to purchase a put option on this stock with an exercise price of $120 and an expiration date 30 days from now. According to the Black-Scholes OPM, you should hold __________ shares of stock per 100 put options to hedge your risk.
A stock that does not pay dividend is trading at $100. The stock price will increase...
A stock that does not pay dividend is trading at $100. The stock price will increase by 10% or decrease by 10% in one year. After that, the stock price will increase or decrease by 20% in the second year. The risk-free interest rate is 5% per annum with continuous compounding. Value a two-year American put option with strike price of $102. Note that risk-neutral probabilities or replicating portfolios may differ across two periods. You must also check for early...
analyze the financial impact of johnson and johnson settlement on the stock price. As an analyst,...
analyze the financial impact of johnson and johnson settlement on the stock price. As an analyst, how would you QUANTITATIVELY measure the impact of this settlement on the stock price?
Expected Return If a company's current stock price is $25.80 and it is likely to pay...
Expected Return If a company's current stock price is $25.80 and it is likely to pay a $1.55 dividend next year. Since analysts estimate the company will have a 12% growth rate, what is its expected return?
The current stock price is $65 and it will pay $3 dividends in 1 month and...
The current stock price is $65 and it will pay $3 dividends in 1 month and 4 months. A European at-the-money put option with 5 months to maturity is traded for $6.A European at-the-money call option with 5 months to maturity is $5. The spot rate for 1, 4, 5 months are 13%,11% and9.5%(c.c). 1.Is there an arbitrage opportunity? If yes describe the investment strategy that pays off today and has for sure zero cash flows at any time in...
Suppose you believe that Johnson Company's stock price is going to increase from its current level...
Suppose you believe that Johnson Company's stock price is going to increase from its current level of $40 sometime during the next 5 months. For $400 you can buy a 5-month call option giving you the right to buy 100 shares at a price of $60 per share. If you buy this option for $500 and Johnson's stock price actually rises to $70, would you exercise your call option? AND what would be your pre-tax net profit or loss from...
Owen Inc. has a current stock price of $12.00 and is expected to pay a $0.60...
Owen Inc. has a current stock price of $12.00 and is expected to pay a $0.60 dividend in six months. IfOwen·s equity cost of capital is 15%, a)What price would its stock be expected to sell for immediately after it pays the dividend?
Assume​ Evco, Inc. has a current stock price of $ 54.01$54.01 and will pay a $...
Assume​ Evco, Inc. has a current stock price of $ 54.01$54.01 and will pay a $ 1.85$1.85 dividend in one​ year; its equity cost of capital is 13 %13%. What price must you expect Evco stock to sell for immediately after the firm pays the dividend in one year to justify its current​ price? We can expect Evco stock to sell for ​$nothing. ​(Round to the nearest​ cent.)
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT