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
jeff jeffy answered 2 years agoRelated Solutions
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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
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$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
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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)
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