Question

In: Finance

A stock is currently priced at $49.00. The risk free rate is 5.9% per annum with...

A stock is currently priced at $49.00. The risk free rate is 5.9% per annum with continuous compounding. In 8 months, its price will be $57.33 with probability 0.46 or $42.63 with probability 0.54.

Using the binomial tree model, compute the present value of your expected profit if you buy a 8 month European call with strike price $53.00. Recall that profit can be negative.

Solutions

Expert Solution


Related Solutions

A stock is currently priced at $37.00. The risk free rate is 5% per annum with...
A stock is currently priced at $37.00. The risk free rate is 5% per annum with continuous compounding. In 7 months, its price will be either $42.18 or $31.82. Using the binomial tree model, compute the price of a 7 month bear spread made of European puts with strike prices $41.00 and $45.00.
A stock is currently priced at $35.00. The risk free rate is 3.2% per annum with...
A stock is currently priced at $35.00. The risk free rate is 3.2% per annum with continuous compounding. In 4 months, its price will be either $39.90 or $31.15. Consider the portfolio with the following: long a European call with strike $39.00 expiring in 4 months; a short futures position on the stock with delivery date in 4 months and delivery price $40.00; a derivative which pays, in 4 months, three times the price of the stock at that time....
A stock is currently priced at $77.00. The risk free rate is 3.2% per annum with...
A stock is currently priced at $77.00. The risk free rate is 3.2% per annum with continuous compounding. Use a one-time step Cox-Ross-Rubenstein model for the price of the stock in 15 months assuming the stock has annual volatility of 19.4%. Compute the price of a 15 month call option on the stock with strike $81.00.
BCA stock price is currently $70. The risk free interest rate is 5% per annum with...
BCA stock price is currently $70. The risk free interest rate is 5% per annum with continuous compounding. Assume BCA's volatility is 25%. What is the difference in price of a of a 6-month American put option with a strike price of $75 and an identical European put option using 5--step binomial trees to calculate the price index today for both options? What is the new Black-Scholes price of this European option? LOOKING FOR ANSWER IN EXCEL FORMAT AND EXPLANATION...
A non-dividend-paying stock currently sells for $100 per share. The risk-free rate is 8% per annum...
A non-dividend-paying stock currently sells for $100 per share. The risk-free rate is 8% per annum and the volatility is 13.48% per annum. Consider a European call option on the stock with a strike price of $100 and the time to maturity is one year. a. Calculate u, d, and p for a two-step tree. b. Value the option using a two-step tree. Verify your results with the Option Calculator Spreadsheet.
A stock is currently priced at $110, and the volatility is 32% per annum. Within the...
A stock is currently priced at $110, and the volatility is 32% per annum. Within the next one year, a dividend of $1.5 is expected after two months and again after eight months (Hint: There are two dividends). The risk-free rate of interest is 7% per annum with continuous compounding. Keep four decimal places for all calculations. 2) According to Black’s approximation, what is the value of a 10-month American call with a strike price of $105?
A stock is currently priced at $40. The risk-free rate of interest is 8% p.a. compounded...
A stock is currently priced at $40. The risk-free rate of interest is 8% p.a. compounded continuously and an 18-month maturity forward contract on the stock is currently traded in the market at $38. You suspect an arbitrage opportunity exists. Which one of the following transactions do you need to undertake at time t = 0 to arbitrage based on the given information? a)Long the forward, borrow money and buy the share b)Short the forward, short-sell the share and invest...
The ASX200 index is currently sitting at 6458. The risk-free interest rate is 2% per annum....
The ASX200 index is currently sitting at 6458. The risk-free interest rate is 2% per annum. Exactly three months remain before the Nov-19 SPI200 futures contract expires. The SPI200 is quoted at 6410. This futures price implies that the dividend yield on the ASX200 market index is?
An index currently stands at 736 and has a volatility of 27% per annum. The risk-free...
An index currently stands at 736 and has a volatility of 27% per annum. The risk-free rate of interest is 5.25% per annum and the index provides a dividend yield of 3.65% per annum. Calculate the value of a five-month European put with an exercise price of 730.
A futures price is currently $25, its volatility (SD) is 30% per annum, and the risk-free...
A futures price is currently $25, its volatility (SD) is 30% per annum, and the risk-free interest rate is 10% per annum. What is the value of a nine-month European call on the futures with a strike price of $26 according to the BSM option pricing model? 1.75 2.67 3.67 2.008
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT