Question
In: Finance
What is the price of a six-month European call option on a stock expected to pay...
What is the price of a six-month European call option on a stock expected to pay a dividend of $1.50 in two months when the stock price is $50, the strike price is $50, the risk-free interest rate is 5% per annum and the volatility is 30% p.a.? Show all working.
Solutions
Expert Solution
Solution:
Strike price = $50, Spot price = $50, Volatility = 30%, Risk-free rate = 5%, Time = 0.5 year
Dividend = 1.5 in 2 months
Present value of the dividend = 1.5 * exp(-5%*2/12) = 1.4876
Spot price Pv of dividend = $50 - 1.4876 = 48.5124
Using Black Scholes formula we can calculate the call option price
All the calculation are goiven in below excel image
The call option premium = 3.98
jeff jeffy answered 1 year agoRelated Solutions
What is the price of a six-month European call option on a stock expected to pay...
What is the price of a six-month European call option on a stock
expected to pay a dividend of $1.50 in two months when the stock
price is $50, the strike price is $50, the risk-free interest rate
is 5% per annum and the volatility is 30% p.a.? Show all
working.
Suppose that a 6-month European call A option on a stock with a strike price of...
Suppose that a 6-month European call A option on a stock with a
strike price of $75 costs $5 and is held until maturity, and
6-month European call B option on a stock with a strike price of
$80 costs $3 and is held until maturity. The underlying stock price
is $73 with a volatility of 15%. Risk-free interest rates (all
maturities) are 10% per annum with continuous compounding.
(a) Construct a butterfly spread with the two kinds of options....
Suppose that a 6-month European call A option on a stock with a strike price of...
Suppose that a 6-month European call A option on a stock with
a strike price of $75 costs $5 and is held until maturity, and
6-month European call B option on a stock with a strike price of
$80 costs $3 and is held until maturity. The underlying stock price
is $73 with a volatility of 15%. Risk-free interest rates (all
maturities) are 10% per annum with continuous compounding.
(a) Construct a butterfly spread with the two kinds of
options....
Suppose that an investor has wrote a six month European call option on Dawn stock, a...
Suppose that an investor has wrote a six month European call
option on Dawn stock, a hypothetical company, with strike price of
$40 for a price of $2.what happens to the option price of
volatility on Dawns stock decreases?
1.option price will remain unaffected
2.option price will be more than 1.5$
3.option price will be less than 2$
4.none of the above
The price of a non-dividend-paying stock is $51. A six-month European call on the stock with...
The
price of a non-dividend-paying stock is $51. A six-month European
call on the stock with a strike price of $50 is selling for $5. The
continuously compounded risk-free rate is 6%. What is the price of
a six-month European put on the stock with a strike price of
$50?
The price company A’s stock is $50 and the price of its 3-month European call option...
The price company A’s stock is $50 and the price of its 3-month
European call option on the stock with a strike price of $52 is $2.
Draw the payoff graph for the option buyer.
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
What is the price of an American call option that is expected to pay a dividend...
What is the price of an American
call option that is expected to
pay a dividend of $1 in three months with
the following parameters?
s0 = $40
d = $1 in 3 months
k = $42
r = 10%
sigma = 20%
T = 0.5 years
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
is $50, the risk-free interest rate is 12% per annum, the
volatility is 30% per annum, and the time to maturity is three
months? What is the price of the call option? (No need to show
work, but you need to report values of N(d1),n(d2) and price of the
call option)
The price of a stock is $36. You can buy a six-month call option with $33...
The price of a stock is $36. You can buy a six-month call option
with $33 exercise price for $3.2 or a six-month put option with $33
exercise price for $1.2.
(a) What is the intrinsic value of the call option?
(b) What is the intrinsic value of the put option?
(c) What is the time premium paid for the call option?
(d) What is the time premium paid for the put option?
(e) If the price of the stock...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Need to program a maze traversal program using dynamic array and stacks. The problem is faced...
- what were some of Ida B Wells significant contributions to the civil rights movement?
- In 2007, there were many people in Sri Lanka who have an opinion that the government...
- Example #2: Write the following set of four linear equations with 4 unknowns x1, x2, x3,...
- "In the digital age, our personal and collective privacy is threatened like it never has been...
- when i type those python code below, i got True, but when i type not a...
- Assume sales for Peach Street Industries are expected to increase by 8.00% from 2015 to 2016....
ADVERTISEMENT