Question

In: Finance

​Eagletron's current stock price is $10. Suppose that over the current​ year, the stock price will...

​Eagletron's current stock price is $10.

Suppose that over the current​ year, the stock price will either increase by 95%

or decrease by 45%.

​Also, the​ risk-free rate is

25 %25%

​(EAR).

a. What is the value today of a​ one-year at-the-money European put option on Eagletron​ stock?

b. What is the value today of a​ one-year European put option on Eagletron stock with a strike price of

$ 19.50$19.50​?

c. Suppose the put options in parts

​(a​)

and

​(b​)

could either be exercised​ immediately, or in one year. What would their values be in this​ case?

Solutions

Expert Solution

AT THE MONEY

STRIKE PRICE 19.5

Since these are European options, these cannot be exercised immediately,

jeff jeffy answered 2 years ago
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