Question
In: Finance
A stock is currently at $50. Over each of the next two 6-month periods, the stock...
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.
Solutions
jeff jeffy answered 2 years agoRelated Solutions
A stock is currently at $50. Over each of the next two 6-month periods, the stock...
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...
A stock price is currently $50. Over each of the next two 3-month periods it is...
A stock price is currently $50. Over each of the next two
3-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.
(a) What is the value of a 6-month European put option with a
strike price of $51? (b) What is the value of a 6-month American
put option with a strike price of $51?
A stock price is currently $50. Over each of the next two three-month periods, it is...
A stock price is
currently $50. Over each of the next two three-month periods, it is
expected to increase by 10% or fall by 10%. Consider a six month
American put option with a strike price of $49.5. The risk
free rate is 6%. Work out the the two step binomial option pricing
fully and fill in the asked questions. (Work out
using 4 decimals and then enter your answers rounding to two
decimals without $ sign)
a)
S0uu= Blank...
A stock price is currently $50. Over each of the next two three-month periods it is...
A stock price is currently $50. Over each of the next two
three-month periods it is expected to go up by 7% or down by 6%.
The risk-free interest rate is 9% per annum with continuous
compounding. What is the value of a six-month European call option
with a strike price of $49? Equations you may find helpful: p =
(e^(rΔt)-d) / (u-d) f = e^(-rΔt) * (fu*p + fd*(1-p)) (required
precision 0.01 +/- 0.01)
A stock price is currently $50. Over each of the next two three-month periods it is...
A stock price is currently $50. Over each of the next
two three-month periods it is expected to
go up by 5% or down by 6%. The risk-free interest rate is 10% per
annum with continuous compounding. What is the value of a six-month
European call option with a strike price
of $49?
A stock price is currently $50. Over each of the next two three-month periods it is...
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 6%.
The risk-free interest rate is 6% per annum with continuous
compounding. What is the value of a six-month American
put option with a strike price of
$53?
A stock price is currently $50. Over each of the next two 3-month periods it is...
A stock price is currently $50. Over each of the next two
3-month periods it is expected to go up by 6% or down by 5%. The
risk-free rate is 5% per annum with continuous compounding. What is
the value of a six-month European call option with a strike price
of $51?
A stock price is currently $50. Over each of the next two 3-month periods it is...
A stock price is currently $50. Over each of the next two
3-month periods it is expected to go up by 6% or down by 5%. The
risk-free rate is 5% per annum with continuous compounding. What is
the value of a six-month European call option with a strike price
of $51? 4
Calculate the price of the put option in problem 3 if it was
American.
A stock price is currently $100. Over each of the next two 6-month periods it is...
A stock price is currently $100. Over each of the next two 6-month
periods it is expected to go up by 10% or down by 10%. The
risk-free interest rate is 8% per annum with continuous
compounding, what is the value of a 1-year European put option with
a strike price of $100?
A stock price is currently $100. Over each of the next two three-month periods it is...
A stock price is currently $100. Over each of the next two
three-month periods it is expected to go up by 8% or down by 7%.
The risk-free interest rate is 5% per annum with continuous
compounding. What is the value of a six-month European call option
with a strike price of $95?
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