The current price of a non-dividend-paying stock is $275 and the annual standard deviation of the...

The current price of a non-dividend-paying stock is $275 and the annual standard deviation of the rate of return on the stock is 50%. A European call option on the stock has a strike price of $340 and expires in 0.25 years. The risk-free rate is 4% (continuously compounded).

1. What is the value of N(d₁) in the Black-Scholes formula? Use Excel's NORM.S.DIST(d₁, true) function.

2. What is the value of N(d₂)?

3. What should be the price (premium) of the call option?

Solutions

Expert Solution

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

EXCEL CELL REFERENCE SHOWN FOR N(d1) AND N(d2)

ALL CALCULATIONS ARE MANUAL, NO EXCEL FUNCTION IS USED, FORMULAS SHOWN

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

The current price of a non-dividend-paying stock is $370 and the annual standard deviation of the...

The current price of a non-dividend-paying stock is $370 and the annual standard deviation of the rate of return on the stock is 50%. A European call option on the stock has a strike price of $444 and expires in 0.25 years. The risk-free rate is 3% (continuously compounded). What is the value of the term d1 in the Black-Scholes formula? What is the value of N(d1)? Use Excel's NORM.S.DIST(d1, true) function. What should be the price (premium) of the...

A non – dividend – paying stock with a current price of $52, the strike price...

A non – dividend – paying stock with a current price of $52, the strike price is $50, the risk free interest rate is 12% pa, the volatility is 30% pa, and the time to maturity is 3 months? a) Calculate the price of a call option on this stock b) What is the price of a put option price on this stock? c) Is the put-call parity of these options hold? (4 + 4 + 2 = 10 marks)...

The current price of a non-dividend-paying stock is $32.59 and you expect the stock price to...

The current price of a non-dividend-paying stock is $32.59 and you expect the stock price to either go up by a factor of 1.397 or down by a factor of 0.716 over the next 0.7 years. A European put option on the stock has a strike price of $33 and expires in 0.7 years. The risk-free rate is 3% (annual, continuously compounded). Part 1. What is the option payoff if the stock price goes down? Part 2. What is the...

The current price of a non-dividend-paying stock is $266.72 and you expect the stock price to...

The current price of a non-dividend-paying stock is $266.72 and you expect the stock price to be either $293.39 or $242.47 after 0.5 years. A European call option on the stock has a strike price of $270 and expires in 0.5 years. The risk-free rate is 3% (EAR). Part 1. What is the hedge ratio (delta)? Part 2. How much money do you need to invest in riskless bonds to create a portfolio that replicates the payoff from one call...

The current price of a non-dividend-paying stock is $100 and you expect the stock price to...

The current price of a non-dividend-paying stock is $100 and you expect the stock price to be either $180 or $40 after 0.5 years. A European call option on the stock has a strike price of $121 and expires in 0.5 years. The risk-free rate is 8% (EAR). Part 1. What is the hedge ratio (delta)? Part 2. How much money do you need to borrow to create a portfolio that replicates the payoff from one call option? Part 3. What...

Question 1 A non – dividend – paying stock with a current price of £52, the...

Question 1 A non – dividend – paying stock with a current price of £52, the strike price is £50, the volatility is 30% pa, the risk free interest rate is 12% pa, and the time to maturity is 3 months? b) Calculate the price of a put option price on this stock? b) Calculate the price of a call option on this stock c) Is the put-call parity of these options hold? If possible, please provide a detailed...

Question 8 A non – dividend – paying stock with a current price of £104, the...

Question 8 A non – dividend – paying stock with a current price of £104, the strike price is £100, the volatility is 30% pa, the risk-free interest rate is 12% pa, and the time to maturity is 3 months? a) Calculate the price of a call option on this stock? b) Calculate the price of a put option price on this stock? c) Is the put-call parity of these options hold? If possible, please provide a detailed step by...

Consider an option on a non-dividend-paying stock that follows a GBM. The current stock price is...

Consider an option on a non-dividend-paying stock that follows a GBM. The current stock price is $80, the exercise price is $80, the continuously compounded risk-free interest rate is 6% per annua;, the volatility is 30% per annual, and the time to maturity is one year. (a) What is the BSM-price of the option if it is a European call? (b) What is the BSM-price of the option if it is an American call? (c) What is the BSM-price of...

A single-stock futures contract on a non-dividend-paying stock with a current price of $120 has a...

A single-stock futures contract on a non-dividend-paying stock with a current price of $120 has a maturity of 1 year. If the T-bill rate is 6%, what should the futures price be? What should the futures price be if the maturity of the contract is 6 years? What should the futures price be if the interest rate is 9% and the maturity of the contract is 6 years?

Consider the following information for a non-dividend-paying stock: Current stock price = 46.20 Call Price Exercise...

Consider the following information for a non-dividend-paying stock: Current stock price = 46.20 Call Price Exercise Price Put Price 7.03 40 0.83 5.24 42.5 1.54 3.76 45 2.56 2.61 47.5 3.9 a) Calculate the maximum profit of a covered call strategy using nearest out-of-the-money options. b) Calculate the maximum loss of a collar strategy using nearest out-of-the-money options. c) Calculate the value of a butterfly spread that peaks at LaTeX: S_T=45.00S T = 45.00. d) Estimate the maximum value of...

Subjects