Question

In: Finance

1.The current price of a stock is $21. In 1 year, the price will be either...

1.The current price of a stock is $21. In 1 year, the price will be either $27 or $15. The annual risk-free rate is 6%. Find the price of a call option on the stock that has a strike price is of $23 and that expires in 1 year. (Hint: Use daily compounding.) Round your answer to the nearest cent. Assume 365-day year. Do not round your intermediate calculations.

2.The current price of a stock is $15. In 6 months, the price will be either $20 or $12. The annual risk-free rate is 3%. Find the price of a call option on the stock that has a strike price of $13 and that expires in 6 months. (Hint: Use daily compounding.) Round your answer to the nearest cent. Assume a 365-day year. Do not round your intermediate calculations.

Solutions

Expert Solution

Sol:

Calculation of price of call option:

2. Higher price = $20

Lower price =$ 12

Current price = $ 15

Strike price = $13

Risk free rate = 0.03

jeff jeffy answered 2 years ago
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