. A stock sells for $110. A call option on the stock has an exercise price...

. A stock sells for $110. A call option on the stock has an exercise price of $105 and expires in 43 days. If the interest rate is 0.11 and the standard deviation of the stock’s return is 0.25. a) Calculate the call using the Black-Scholes model b) What would be the price of a put with an exercise price of $140 and the same time until expiration? c) How does an increase in the volatility and interest rate changes affect the underlying stock’s return on an option’s value? Explain.

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

A stock sells for $110. A call option on the stock has exercise price of $105...

A stock sells for $110. A call option on the stock has exercise price of $105 and expires in 43 days. Assume that the interest rate is 0.11 and the standard deviation of the stock’s return is 0.25. What is the call price according to the black-Scholes model?

A stock sells for $110.A call option on the stock has an exercise price of $105...

A stock sells for $110.A call option on the stock has an exercise price of $105 and expires in 43 days.Assume that the interest rate is 0.11 and the standard deviation of the stock's return is 0.25 Required: What is the call price according to the Black Scholes model?

A non-dividend paying stock sells for $110. A call on the stock has an exercise price...

A non-dividend paying stock sells for $110. A call on the stock has an exercise price of $105 and expires in 6 months. If the annual interest rate is 11% (0.11) and the annual standard deviation of the stock’s returns is 25% (0.25), what is the price of a European put option according to the Black-Scholes-Merton option pricing model. A call and put expire in 0.41 year and have an exercise price of $100. The underlying stock is worth $90...

A call option with an exercise price of $110 has six months to the expiration date....

A call option with an exercise price of $110 has six months to the expiration date. Currently, the stock is sold at a price of $120. At the expiration date, the underlying stock has two possible ending prices: $150 or $105. The risk-free rate of return is 8 percent per annum. Calculate the price of this call option using binomial option pricing model. (Hint: You can use any of the two methods of your preference)

A call option with an exercise price of $110 has six months to the expiration date....

Consider a call option with an exercise price of $110 and one year to expiration. The...

Consider a call option with an exercise price of $110 and one year to expiration. The underlying stock pays no dividends, its current price is $110, and you believe it has a 50% chance of increasing to $120 and a 50% chance of decreasing to $100. The risk-free rate of interest is 10% What is the hedge ratio? What is the value of the riskless (perfectly hedged) portfolio one year from now? What is the value of the call option...

You purchased a call option for an Apple stock with the strike price of $110. The...

You purchased a call option for an Apple stock with the strike price of $110. The option premium was $1. You held the option until maturity, when the price for each share of Apple was $111. Your payoff at maturity was_____. -$2. $-1 $1 $0

You have written a call option on Walmart common stock. The option has an exercise price...

You have written a call option on Walmart common stock. The option has an exercise price of $88, and Walmart’s stock currently trades at $86. The option premium is $1.30 per contract. a. How much of the option premium is due to intrinsic value versus time value? b. What is your net profit if Walmart’s stock price decreases to $84 and stays there until the option expires? c. What is your net profit on the option if Walmart’s stock price...

You have written a call option on Walmart common stock. The option has an exercise price...

You have written a call option on Walmart common stock. The option has an exercise price of $77, and Walmart’s stock currently trades at $75. The option premium is $1.40 per contract. a. How much of the option premium is due to intrinsic value versus time value? b. What is your net profit if Walmart’s stock price decreases to $73 and stays there until the option expires? c. What is your net profit on the option if Walmart’s stock price...

An investor has a call option on YZE stock with a strike (exercise) price of $25....

An investor has a call option on YZE stock with a strike (exercise) price of $25. The current price of YZE stock is $22. The investor’s call option is in-the money. True False Explain the answer please.

Subjects