In: Finance
A stock is currently at $50. Over each of the next two 6-month periods, the stock may move up to a factor 1.2 or down by a factor of 0.8 in each period. A European put option with strike price of $48 and maturity of one year is available. The current risk-free rate is 4.0% per year.
a. Is the put option in the money or out the money? Explain
b. What is the current value of this European put option?
c. Find the time value for this put option.
d. What is the price of a European call option with the same strike price and maturity?
e. Is the call option in the money or out of the money? Explain f. Find the time value for this call option.