Question
In: Accounting
In your portfolio you have purchased 1 European Call option and written 1 European Put option...
In your portfolio you have purchased 1 European Call option and written 1 European Put option on stock ABC for $4 and $2 respectively. The strike/exercise prices of both the options are equal to $50. These options are set to expire on the 3rd Friday of June 2015. The possible values for the price of the stock ABC on the 3rd Friday of June 2015 are: $30 with 20% chance; $50 with 30% chance and $70 with 50% chance. The standard deviation of the returns on your portfolio is:
Solutions
ekkarill92 answered 1 year agoRelated Solutions
A European call option and put option on a stock both have a strike price of...
A European call option and put option on a stock both have a
strike price of $21 and an expiration date in 4 months. The call
sells for $2 and the put sells for $1.5. The risk-free rate is 10%
per annum for all maturities, and the current stock price is $20.
The next dividend is expected in 6 months with the value of $1 per
share.
(a) describe the meaning of “put-call parity”. [2
marks]
(b) Check whether the...
A European call option and put option on a stock both have a strike price of...
A European call option and put option on a stock both have a
strike price of $21 and an expiration date in 4 months. The call
sells for $2 and the put sells for $1.5. The risk-free rate is 10%
per annum for all maturities, and the current stock price is $20.
The next dividend is expected in 6 months with the value of $1 per
share.
(a) In your own words, describe the
meaning of “put-call parity”.
(b) Check...
A European call option and put option on a stock both have a strike price of...
A European call option and put option on a stock both have a
strike price of $25 and an expiration date in four months. Both
sell for $4. The risk-free interest rate is 6% per annum, the
current stock price is $23, and a $1 dividend is expected in one
month. Identify the arbitrage opportunity open to a
trader.
A. What is Price of a European Put option? B. Price of a European Call option?...
A. What is Price of a European Put option?
B. Price of a European Call option?
Spot price = $60
Strike Price = $44
Time to expiration = 6 months
Risk Free rate = 3%
Variance = 22% (use for volatility)
Show steps/formula
You buy a European call option for a stock. The premium paud for this put option...
You
buy a European call option for a stock. The premium paud for this
put option is $15. The pricd is $200. You are now at the maturity
of this option.
(a) If the price at maturity is $210, what is the optimal
decision? Calculate and explain possible choices.
(b) What are the profits/losses for the seller of this option?
Explain.
(c) What is the breakeven point? Explain.
A European call option on Visa stock costs $85.36, while a European put option on the...
A European call option on Visa stock costs $85.36, while a
European put option on the same stock costs $31. Both options
expire in 0.5 years and have a strike price of 800. Google does not
pay dividends and its stock price is $850.
What should be the risk-ree rate (effective annual rate)?
You are offered a European Call option. This means you will have the option, but not...
You are offered a European Call option. This means you
will have the option, but not the
obligation, to buy the stock at the strike price K of
$100.
The price of the stock today is
$90. Your time discount rate is Beta=0.98, the risk-less rate of
interest is 3%.
The price of the stock follows the following process over
two periods: with probability
75% the price will not change from period 0 to period 1, but with
probability 25%...
Assume the following for a stock and a call and a put option written on the...
Assume the following for a stock and a call and a put option
written on the stock.
EXERCISE PRICE = $20
CURRENT STOCK PRICE = $20
VARIANCE = .25
TIME TO EXPIRATION = 3 MONTHS
RISK FREE RATE = 3%
Use the Black Scholes procedure to determine the value of the
call option and the value of a put.
Consider a European call option and a put option on a stock each with a strike...
Consider a European call option and a put option on a stock each
with a strike price of K = $22 and each expires in six months. The
price of call is C = $3 and the price of put is P = $4. The risk
free interest rate is 10% per annum and current stock price is S0 =
$20. Show how to create an arbitrage strategy and calculate the
arbitrage traders profit.
1. A European call option was written on the non-dividend paying shares of firm X. The...
1. A European call option was written on the non-dividend paying
shares of firm X. The option has an exercise price of $65 and
expires in 73 days. The underlying shares of firm X currently sell
for $67.25 and the standard deviation of their continuously
compounded returns is 23%. The annual riskless rate is 5.15%.
a.) Using the information provided, what is the value of d1, the
value used for accessing the cumulative probability of a value of d
or...
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