Question

In: Finance

Suppose that the price of a non-dividend-paying stock is $32, its volatility is 30%, and the...

Suppose that the price of a non-dividend-paying stock is $32, its volatility is 30%, and the risk-free rate for all maturities is 5% per annum. Use DerivaGem to calculate the the cost of setting up the following positions:

            (a) a bull spread using European call options with strike prices of $25 and $30 and a maturity of 6 months

            (b) a bear spread using European put options with strike prcies of $25 and $30 and a maturity of 6 months

            © a butterfly spread using European call options with strike prices of $25, $30, and $35 and a maturity of 1 year

            (d) a butterfly spread using European put options with strike prices of $25, $30, and $35 and a maturity of 1 year

            E—a straddle using options with a strike price of $30 and a 6-month maturity

Provide a table showing the relationship between profit and final stock price. Ignore the impact of discounting.

Solutions

Expert Solution


Related Solutions

A non-dividend paying stock has a current price of 80 and has a volatility of 20%....
A non-dividend paying stock has a current price of 80 and has a volatility of 20%. The risk-free rate is 4%. Determine the price of a European put option on the stock with a strike price of 75 and one year to maturity. Use a two-step binomial tree Use the Black-Scholes formula
A non-dividend-paying stock is trading at 72 and has volatility of 30% per annum. Consider an...
A non-dividend-paying stock is trading at 72 and has volatility of 30% per annum. Consider an option on the stock with strike price $75 and maturity six months. The risk-free rate is 2% per annum (continuously compounded). (a) What is the price of the option if it is a European call? (b) What is the price of the option if it is a European put? (c) What is the price of the option if it is an American call?
Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price...
Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price is $29, the risk-free interest rate is 5% per annum, the volatility is 25% per annum, and the time to maturity is four months. 1. What is the price of the option if it is a European call? 2. What is the price of the option if it is an American call?
Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price...
Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price is $29, the risk-free interest rate is 5% per annum, the volatility is 25% per annum, and the time to maturity is four months. What is the price of the option if it is a European call? What is the price of the option if it is an American call? What is the price of the option if it is a European put? Verify...
The volatility of a non-dividend-paying stock whose price is $45, is 20%. The risk-free rate is...
The volatility of a non-dividend-paying stock whose price is $45, is 20%. The risk-free rate is 3% per annum (continuously compounded) for all maturities. Use a two-step tree to calculate the value of a derivative that pays off [max(St − 48, 0)]" where is the stock price in four months?
The volatility of a non-dividend-paying stock whose price is $55, is 25%. The risk-free rate is...
The volatility of a non-dividend-paying stock whose price is $55, is 25%. The risk-free rate is 4% per annum (continuously compounded) for all maturities. Use a two-step tree to calculate the value of a derivative that pays off [max(St − 62, 0)]" where St is the stock price in four months?
The volatility of a non-dividend-paying stock whose price is $40, is 35%. The risk-free rate is...
The volatility of a non-dividend-paying stock whose price is $40, is 35%. The risk-free rate is 6% per annum (continuously compounded) for all maturities. Use a two-step tree to calculate the value of a derivative that pays off [max(St − 52, 0)]" where St is the stock price in six months?
The volatility of a non-dividend-paying stock whose price is $45, is 20%. The risk-free rate is...
The volatility of a non-dividend-paying stock whose price is $45, is 20%. The risk-free rate is 3% per annum (continuously compounded) for all maturities. Use a two-step tree to calculate the value of a derivative that pays off [max(?! − 48, 0)]" where ST is the stock price in four months?
) Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise...
) Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price is $28, the risk-free interest rate is 5% per annum, the volatility is 30% per annum, and the time to maturity is four months. (a) What is the price of the option if it is a European call? (b) What is the price of the option if it is an American call? (c) What is the price of the option if it is...
q 20 A non-dividend paying stock is currently trading at $60 and its volatility is 20%...
q 20 A non-dividend paying stock is currently trading at $60 and its volatility is 20% per annum. Risk free rate is 12% per annum. Consider a European call option with a strike price of $58 that will expire in three months. What is the price of this call option based on Black-Scholes model?   (Enter your answer in two decimals without $ sign)
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT