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In: Finance
A stock is currently trading at 36$/share, has annual volatility of 17% and pays no dividends....
A stock is currently trading at 36$/share, has annual volatility of 17% and pays no dividends. The risk-free rate is 6% p.a. continuously compounded and an option trader writes a three-month call which is $4 out-of-the money. What should be the price of this call? What should be the price of this call as a percentage of the current stock price?
Solutions
jeff jeffy answered 2 hours agoRelated Solutions
Moutainbrook Company stock is is currently trading at $44 per share. The stock pays no dividends....
Moutainbrook Company stock is is currently trading at $44 per
share. The stock pays no dividends. The standard deviation of the
returns on the stock is 55%. The continuously compounded interest
rate is 6% per year. A three-year European call option on
Mountainbrook stock has a strike price of $50 per share. Using the
Black-Scholes-Merton model, find the premium per share to four
decimal places.
Suppose Amazon stock is trading for $ 535 per share, and Amazon pays no dividends. a....
Suppose Amazon stock is trading for $ 535 per share, and Amazon
pays no dividends.
a. What is the maximum possible price of a call option on
Amazon?
b. What is the maximum possible price of a put option on Amazon
with a strike price of $ 590?
c. What is the minimum possible value of a call option on Amazon
stock with a strike price of $ 500?
d. What is the minimum possible value of an American put...
(a) Consider a stock that pays annual dividends. It just paid $4.50 dividends per share, and...
(a) Consider a stock that pays
annual dividends. It just paid $4.50 dividends per share, and the
next dividend will be paid in 1 year. The dividends are expected to
remain constant at $4.50 per share for the next 10 years, after
which the dividends are expected to decrease at a rate of 0.5% per
year. The annual cost-of-capital is 15.50%. Find the fair value of
the stock today.
(b) Consider the same stock as
described in part (a), except...
(a) Consider a stock that pays annual dividends. It just paid $4.50 dividends per share, and...
(a) Consider a stock that pays annual dividends. It just paid
$4.50 dividends per share, and the next dividend will be paid in 1
year. The dividends are expected to remain constant at $4.50 per
share for the next 10 years, after which the dividends are expected
to decrease at a rate of 0.5% per year. The annual cost-of-capital
is 15.50%. Find the fair value of the stock today.
(b) Consider the same stock as described in part (a), except...
(a) Consider a stock that pays annual dividends. It just paid $4.50 dividends per share, and...
(a) Consider a stock that pays
annual dividends. It just paid $4.50 dividends per share, and the
next dividend will be paid in 1 year. The dividends are expected to
remain constant at $4.50 per share for the next 10 years, after
which the dividends are expected to decrease at a rate of 0.5% per
year. The annual cost-of-capital is 15.50%. Find the fair value of
the stock today.
(b) Consider the same stock as
described in part (a), except...
A share of stock is currently worth $90 and has a volatility of 20%. The domestic...
A share of stock is currently worth $90 and has a volatility of
20%. The domestic risk-free interest rate is 5% and the stock does
not pay any dividend. Use a two-step binomial tree to derive a) the
value of a European four-month call option written on a 100 shares
of stock with a strike price of $91 per share, and b) the position
in shares of stock (long or short) which will hedge a short
position in the European...
Alberta Inc. (AI) pays an annual dividend of $1.34 per share. If AI's stock is currently...
Alberta Inc. (AI) pays an annual dividend of $1.34 per share. If
AI's stock is currently trading at $21.39 per share, and AI's
expected growth rate is 7%, what is AI's expected return?
5. The current stock price of TransContinentalAirways is $65 per share. TCA currently pays an annual...
5. The current stock price of TransContinentalAirways is $65 per
share. TCA currently pays an annual per-share dividend of $3. Over
the past 5 years this dividend has grown annually at a rate of 23%.
A respected analyst assumes that the current growth rate of
dividends will hold up for the next 5 years, after which dividend
growth will slow to 5% annually. Use the twostagegordon function to
compute the cost of equity.
Complete in Excel, please include formulas
Consider a stock that pays no dividends and currently sells for S0. The forward on this...
Consider a stock that pays no dividends and currently sells for
S0. The forward on this stock for date-T delivery has the forward
price F0 that is greater than S0erT . Suppose that short selling
for this stock is NOT allowed in the market. For the forward, we
can either long or short. Here, we can make an arbitrage Is this
true or false?
A stock currently trades at $50. It pays dividends at a rate of 2%, and the...
A stock currently trades at $50. It pays dividends at a rate of
2%, and the risk-free rate is also 2%. A 3-month call option with a
strike price of $50 is trading at $2.
Calculate the implied volatility of the underlying stock.
Calculate the volatility of the call option.
(No Excel work. Please show step by step with formula)
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