Question
In: Finance
A stock is currently selling for $50. The stock price could go up by 10 percent...
A stock is currently selling for $50. The stock price could go up by 10 percent or fall by 5 percent each month. The monthly risk-free interest rate is 1 percent. Calculate the price of an American put option on the stock with an exercise price of $55 and a maturity of two months. (Use the two-stage binomial method.)
A. $5.10
B. $3.96
C. $4.78
D. $1.19
Why is it A
Solutions
Expert Solution
where
interest rate = monthly rate*12 = 1*12 = 12%
Time period t in years = 1/no. of months in a year = 1/12 = 0.08333
jeff jeffy answered 2 years agoRelated Solutions
Consider a stock which is currently selling at $4.5. The stock price will either go up...
Consider a stock which is currently selling at $4.5. The stock
price will either go up to $5 + x with probability 0.5 or go down
to $5 − x with probability 0.5 one period later. The one-period
riskless rate of interest is 5%.
a) What are the market prices of at-the-money put options that
expire at the end of the period when x is set equal to $0.5, $1,
$1.5, $2, and $2.5, respectively?
b) Plot the one-period put...
Consider a stock which is currently selling at $4.5. The stock price will either go up...
Consider a stock which is currently selling at $4.5. The stock
price will either go up to $5 + x with probability 0.5 or go down
to $5 − x with probability 0.5 one period later. The one-period
riskless rate of interest is 5%.
(a) What are the market prices of at-the-money call options that
expire at the end of the period when x is set equal to $0.5, $1,
$1.5, $2, and $2.5, respectively?
A stock priced at 50 can go up or down by 10 percent over two periods....
A stock priced at 50 can go up or down by 10 percent over two
periods. The risk-free rate is 4 percent. Which of the following is
the correct price of an American put with an exercise price of 50?
(10 points)
Suppose a stock currently trades at a price of 150. The stock price can go up...
Suppose a stock currently trades at a price of 150. The stock
price can go up 33% or down 15%.The risk free rate is 4.5%
1. use a one period binomial model to calculate the price of a
put option with exercise price of 150.
2. Suppose the put price is currently 14, show how to execute an
arbitrage transaxtion that will earn more than the risk free rate .
use 10,000 put options.
3. Suppose the put price is...
A stock price is currently $50. A stock price is currently $50. Over each of the...
A stock price is currently $50. A stock price is currently $50.
Over each of the next two three-month periods it is expected to go
up by 6% or down by 5%. The risk-free interest rate is 5% per annum
with continuous compounding. Use two-period binomial models to
value the six-month options on this stock. Remember to show
detailed calculations of the option value at each node.
(a) What is the value of a six-month European call option with a...
Consider a stock currently trading at 25 that can go up or down by 15 percent...
Consider a stock currently trading at 25 that can go up or down
by 15 percent per period. The risk-free rate is 10 percent. Use
one-period binomial model. a. Determine the two possible stock
prices for the next period. b. Determine the intrinsic values at
expiration of a European call with an exercise price of 25. c. Find
the value of the option today. d. Construct a hedge by combining a
position in stock with a position in the call....
Consider a stock currently trading at 25 that can go up or down by 15 percent...
Consider a stock currently trading at 25 that can go up or down
by 15 percent per period. The risk-free rate is 10 percent.
Use one-period binomial model.
A. Determine the two possible stock prices for the next
period.
B. Determine the intrinsic values at expiration of a European
call with an exercise price of 25.
C. Find the value of the option today.
D. Construct a hedge by combining a position in stock with a
position in the call....
The stock price is currently $50. The stock price annual up-move factor is 1.15. The risk-free...
The stock price is currently $50. The stock price annual up-move
factor is 1.15. The risk-free rate is 3.9%. What is the value of a
1-year European call option with an exercise price of $52.
$ 3.21
$ 2.38
$ 2.73
$ 1.95
A stock price is $100 now. In one month it can go 10% up or down....
A stock price is $100 now. In one month it can go 10% up or
down. In the second month it can go 10% up or down. The annual
interest rate is 10% with continuous compounding. Use risk-‐free
portfolios to determine the value of: (do not use probabilities) a)
A two-‐month European call with strike price 100 b) A two-‐month
European call with strike price 104
Titanic Corporation has 10 million share outstanding, selling currently at a price of $50 per share....
Titanic Corporation has 10 million share outstanding, selling
currently at a price of $50 per share. The company expects earnings
per share next year to be $7.50. The company retains one-third of
each year's earnings and reinvests these funds in projects with an
expected return of 15% (thus, ROE is 15%)
What Rate of return do the shareholders require?
Suppose that, unexpectedly, the company announces plans to
retain an additional $3 per share for the next ten years. These
additional...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Make-or-Buy Decision Fremont Computer Company has been purchasing carrying cases for its portable computers at a...
- The following costs were incurred for the single product produced during the first year of operations...
- Non-constant growth model: Do=$2.00 required return on equity= 5% g= 9% n=1,2 g=7% n=3,4 g=3% n=5...
- . Find all x ∈ Z143 such that x2Ξ 7 (mod 143). Please explain all steps...
- #Python: A palindrome is a sequence of characters that reads the same backwards as forwards. For...
- Explain an example in which a variable has two different addresses at different places in a...
- Hadley, a thirty-five-year-old physician, has worked at Princeton Plainsboro Hospital for six years. She recently received...
ADVERTISEMENT