Question
In: Finance
Consider a put option on a non-dividend-paying stock when the stock price is $30, the exercise...
Consider a put option on a non-dividend-paying stock when the stock price is $30, the exercise price is $29, the risk-free rate is 5%, the volatility is 25% per annum, and the time to maturity is four months.
- Use a 2-period binomial model to price this same option.
- Use Black-Scholes formula to value this option
- How much the European call option on this stock with the same strike (E) and time to maturity (T) will cost?
- How much the American call with the same E and T will cost?
Solutions
Expert Solution
ANSWER IN THE IMAGE ((YELLOW HIGHLIGHTED). FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.
A.
| Standard deviation | 25.00% | ||||
| Time of each period (months) | 2 | ||||
| u= e^(Standard deviation)*( Time each period/12)0.5 | |||||
| u= | 1.1075 | ||||
| d=1/u= | 0.9030 | ||||
B. 
C,D.
jeff jeffy answered 1 year agoRelated Solutions
Consider a put option on a non-dividend-paying stock when the stock price is $30, the exercise...
Consider a put option on a
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Use a 2-period binomial model to price this same option.
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Use a 2-period binomial model to price this same option.
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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
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rate is 5% per annum, the volatility is 25% per annum, and the time
to maturity is four months.
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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
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rate is 5% per annum, the volatility is 25% per annum, and the time
to maturity is four months.
What is the price of the option if it is a European call?
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days).
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