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 1 year agoRelated Solutions
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The price of a non-dividend-paying stock is $66. A two-month
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A two-month European put option on a non-dividend-paying stock has a strike price of $65. The...
A two-month European put option on a non-dividend-paying stock
has a strike price of $65. The risk-free interest rate is 5% per
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a) What is the lower bound for this put option?
b) If the market price of this put option is $3, is there an
arbitrage opportunity?
c) If so, define the arbitrage strategy.
A two-month European put option on a non-dividend-paying stock has a strike price of $65. The...
A two-month European put option on a non-dividend-paying stock
has a strike price of $65. The risk-free interest rate is 5% per
annum and the stock price is $58. a) What is the lower bound for
this put option? b) If the market price of this put option is $3,
is there an arbitrage opportunity? c) If so, define the arbitrage
strategy.
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
price of $2.50. The stock price is $15, the exercise price is $13,
the time to maturity is three months, and the risk-free interest
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
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.
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
call?
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
The price of a European call option on a non-dividend-paying stock with a strike price of...
The price of a European call option on a non-dividend-paying
stock with a strike price of $50 is $6 and the stock price is $52.
The continuously compounded risk-free rate is 3% and the time to
maturity is six months. What is the price of a six-month European
put option on the stock with a strike price of $50?
Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price...
Consider an option on a non-dividend-paying stock when the stock
price is $30, the exercise price is $29, the risk-free interest
rate is 5% per annum, the volatility is 25% per annum, and the time
to maturity is four months.
1. What is the price of the option if
it is a European call?
2. What is the price of the option if
it is an American call?
Consider an option on a non-dividend-paying stock when the stock price is $40, the strike price...
Consider an option on a non-dividend-paying stock when
the stock price is $40, the strike price of $38, the risk-free
interest rate is 10% per annum, the volatility is 35% per annum,
and the time to maturity is five months.
1. What is the price of the option if it is a European
call?
2. What is the price of the option if it is a European
put?
What is the price of a European call option in a non-dividend-paying stock when stock price...
What is the price of a European call option in a
non-dividend-paying stock when stock price is $52, the strike price
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