Question
In: Finance
You observe a $60 price for a non- dividend- paying stock. The option has two years...
You observe a $60 price for a non- dividend- paying stock. The
option has two years to mature, the periodically compounded risk-
free interest rate is 4%, the exercise price is $60, u = 1.156, and
d = 0.844. Assume the option is European- style. Based on a
two-period binomial tree model, the current call and put option
value are closest to
A. call price is $7.36 and put price is $2.84
B. call price is $2.84 and put price is $7.36
C. call price is $4.36 and put price is $3.84
D. call price is $3.84 and put price is $4.36
Solutions
Expert Solution
Correct answer: A. call price is $7.36 and put price is $2.84
Please refer to below spreadsheet for calculation and answer. Cell reference also provided.
Cell reference -
jeff jeffy answered 2 years agoRelated Solutions
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A two-month European put option on a non-dividend-paying stock
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b) If the market price of this put option is $3, is there an
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c) If so, define the arbitrage strategy.
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A two-month European put option on a non-dividend-paying stock
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6. A call option on a non-dividend-paying stock has a market price of $2.50. The stock...
6. A call option on a non-dividend-paying stock has a market
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rate is 5% per annum. What is the implied volatility?
Consider an option on a non dividend paying stock when the stock price is $35, the...
Consider an option on a non dividend paying stock when the stock
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rate is 4% per annum, the volatility is 20% per annum, and the time
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a.What is the price of the option if it is a European call?
b. What is the price of the option if it is an American
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c. What is the price of the option if it...
Consider an option on a non dividend paying stock when the stock price is $35, the...
Consider an option on a non dividend paying stock when the stock
price is $35, the exercise price is $31, the risk free interest
rate is 4% per annum, the volatility is 20% per annum, and the time
to maturity is four months. Verify that put call parity holds
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Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price...
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